During the Budget Speech on Monday 29th October, Chancellor Philip Hammond announced an increase to the Personal Allowance amount. Many aspects of the Budget have a multi layered impact that isn’t always immediately obvious. So it is important to ask the question, is this good news for me?
What is the Personal Allowance?
This is the amount of income you are allowed to earn before you have to pay any income tax. At the moment this is £11,850. So, you can earn up to this amount and not be liable for any income tax.
What happened to the Personal Allowance amount in the 2018 Budget?
In the Budget, the Personal Allowance amount was increased to £12,500. For the 2019-20 tax year, you can earn up to £12,500 before you pay any tax. This is good news for you and every other taxpayer. The government were aiming to move the Personal Allowance in the next tax year, but have decided to move this deadline up to April 2019.
How much will I save?
As a basic rate taxpayer, you will save £130 per year on income tax. This is worked out by calculating how much of your income will no longer be liable for income tax.
An easy sum:
- New Personal Allowance amount, minus the old Personal Allowance amount.
- £12,500 – £11,850 = £650
If the Personal Allowance amount had stayed the same, you would be paying income tax on that £650. As it has increased, you are saving 20% (the Basic Rate of tax) on that £650.
- 20% of £650 = £130
That’s how you get your income tax saving of £130 per year.
Is it really that simple?
As with everything tax, your personal situation will be unique to you. For you to work out exactly what you will have in the bank after the Budget 2018 changes are implemented, you need to consider more than just the Personal Allowance. Just in terms of income tax, you need to look at the Higher Rate tax threshold changes and the alterations made to National Insurance contributions. The question you started with is the same – how does it affect me? Sometimes it just takes a bit to unpack how everything fits together. Luckily Tax Banana is here to steer you in the right direction. We’ll take a further look at other details of the 2018 Budget in subsequent articles.