One interesting aspect of today’s Budget is the government’s change of tack on personal allowances. Back in June 2010, when the Chancellor committed to raise allowances from
£6,475 to £7,475, he chose to cancel out the gains for higher rate taxpayers by lowering the level at which the 40p tax rate kicks in. The idea was to focus the gains of the policy on
basic rate taxpayers, making things a little more efficient. The 40p threshold will therefore be lowered from April this year from £43,875 to £42,475 with the result that 700,000 people
will become higher rate taxpayers.
Needless to say, that’s proved unpopular, and so this time around the higher rate threshold won’t be reduced. When personal allowances go up by £630 to £8,105 in April
2012, as announced today, the higher rate threshold will stay flat in cash terms at £43,875.