The legislation currently provides for three tiers of personal allowance, depending on the age of the taxpayer, with persons born before 1948 and 1938 benefitting from higher tax free allowances.
Finance Bill 2015 will remove one of these tiers by setting the personal allowance for everyone born after 1938 at £10,600 for 2015/16. From 2016/17 there will be one personal allowance regardless of an individual’s date of birth. The personal allowance for 2016/17 and 2017/18 will be £10,800 and £11,000 respectively.
The threshold above which an individual pays tax at higher rate will increase from £41,865 to £42,385 for 2015/16 (2016/17 – £42,700, 2017/18 – £43,300).
This is the first increase in the personal allowance that higher rate taxpayers will actually benefit from in full, as the higher rate threshold has been squeezed in earlier years, so that the benefit of increases in the personal allowance were confined to basic rate tax payers.