Budget 2014 – Income Tax

Personal Allowance

The Chancellor announced in the Autumn statement that the tax free personal allowance for 2014/15 would increase from £9,440 to £10,000. He also made the much anticipated announcement that the allowance would increase to £10,500 from 6 April 2015.

The Chancellor has therefore met his pledge that during the course of this Parliament the tax free personal allowance would reach £10,000.

For taxpayers with income over £100,000 per annum the personal allowance will continue to be withdrawn. £1 of allowance is lost for every £2 of income over the £100,000 level, so those with income over £120,000 will not receive any personal allowance.

The 2013 Budget announced that the personal allowances for those aged over 65 would be frozen until the personal allowances for younger people caught up. The age allowances from 6 April 2014 will therefore be:-

  •  Born on or before 6 April 1948 – £10,500
  •  Born on or before 6 April 1938 – £10,660

George Osborne has again commented that despite the freeze on the personal allowance no pensioner will lose in cash terms.


Married Couples Allowances

The allowance available for married couples/civil partners where at least one partner was born prior to 6 April 1935 continues. The pre announced rates for the 2014/15 tax year will allow a maximum tax saving of £816 for the year. The allowance is reduced where income exceeds £27,000, but will give a minimum tax saving for higher earning couples of £314.

A new transferable allowance for married couples/civil partners is to be introduced with effect from 6 April 2015. This will be available to couples where neither spouse is a higher or additional rate taxpayer, so is only available to couples where the higher earner has income of under approximately £43,000. If the couple elect to transfer the allowance it will mean that one spouse will pay tax on £1,050 less of their income. This will save up to £210 of tax in 2015-16, although it is not clear how easy it will be for these allowances to be transferred.


Income Tax Rates

The first £31,865 of income over the level of the tax free personal allowance will be taxed at the basic tax rate of 20%. The higher rate threshold when 40% tax becomes payable will therefore be £41,865 for the 2014/15 year, an increase from £41,450 in the 2013/14 tax year.

It has been announced today that the higher rate tax threshold will continue to rise by 1% per annum. In 2015/16.it will move to £42,285.

For those taxpayers with income in excess of £150,000 per annum the Chancellor has confirmed that the additional tax rate would be maintained at 45%.


Cap on Income Tax Reliefs

In April 2012 George Osborne announced that with effect from 6 April 2013 there will be a cap on certain unlimited income tax reliefs. This cap will be set at the greater of £50,000 or 25% of income. This limit continues for the 2014/15 tax year.

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