The Chancellor has confirmed that it is the government’s objective to support and reward individuals in work by cutting tax and enabling them to keep more of the money they earn.
As a result, from April 2016, the personal allowance will be increased to £11,000, the basic rate limit to £32,000 and the higher rate threshold to £43,000. These measures are in line with the government’s plan eventually to raise the personal allowance to £12,500 and the higher rate threshold to £50,000.
Further, the government is committed to introducing legislation which will ensure that the basic, higher and additional income tax rates of 20%, 40% and 45% respectively remain unchanged for the duration of this current Parliament.
The government has also announced that it will abolishing the complicated dividend tax credit system with effect from April 2016. This system will be replaced by a new tax-free annual dividend allowance of £5,000. Although dividend income above the allowance is to be taxed at increased rates of 7.5%, 32.5% and 38.1% for basic, higher and additional tax rate payers respectively, the changes are expressed to ensure only individuals with significant share investments (circa £140,000 plus based on an average portfolio) will pay income tax on dividends.