HM Treasury has given its verdict following fresh calls to increase the tax free Personal Allowance (which has been stagnant at £12,570 since 2021) to £20,000 per year
The government has finally responded to growing calls to increase the income tax personal allowance. It comes after an online petition urging Chancellor Rachel Reeves to substantially lift the cap to £20,000 per tax year exceeded a staggering 225,000 signatures.
Currently, how much Income Tax you pay in each tax year depends on how much of your income is above your Personal Allowance, as well as how much of your income falls within each tax band. However, the standard Personal Allowance (the amount you don’t have to pay tax on) has been frozen at £12,570 since 2021, and will remain stagnant until at least 2028.
Remember, you start to lose your income if you earn over £100,000. For every £2 you earn over this amount, you lose £1 of your tax-free Personal Allowance.
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Dennis Reed, who kickstarted the petition, argues those claiming the new state pension may breach the current personal allowance of £12,570 by next year – meaning they’ll get taxed on a portion of their monthly payments. He described the blow as a ‘double whammy’ against seniors, many of whom are still angry from the axing of the Winter Fuel Allowance.
“Because of the frozen tax personal allowances, the top of the new state pension may breach the current personal allowance of £12570 in 2026,” he said, per Liverpool Echo. “This would lead to the ludicrous situation of the state pension safety net, which has already been paid for through national insurance and tax, being taxed again. Many more pensioners across the country would be plunged into poverty as a result of political choice.”
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Despite the impressive amount of signatures, HM Treasury quickly shut the idea down. The body claimed it was ‘committed’ to keeping taxes for working people ‘as low as possible’ while ensuring ‘fiscal responsibility’.
“Increasing the Personal Allowance to £20,000 would come at a significant fiscal cost of many billions of pounds per annum,” the government added. “This would reduce tax receipts substantially, decreasing funds available for the UK’s hospitals, schools, and other essential public services that we all rely on.
“It would also undermine the work the Chancellor has done to restore fiscal responsibility and economic stability, which are critical to getting our economy growing and keeping taxes, inflation, and mortgages as low as possible. The Government keeps all taxes under review as part of the policy making process. The Chancellor will announce any changes to the tax system at fiscal events in the usual way.”
You can read the full petition here.
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