MILLIONS of households will save hundreds every year after the government confirmed a 1p cut to the basic rate of income tax.
The tax cut announced in today’s mini Budget will save the average household £124 a year from next April.
Kwasi Kwarteng said: “We that we will cut the basic rate of income tax to 19p in April 2023 – one year early.
“That means a tax cut for over 31m people in just a few months’ time. That means we will have one of the most competitive and pro-growth income tax systems in the world.”
It means that anyone earning more than £150,000 will be able to keep more of their earnings, as their tax will go down to 40 per cent for anything above £50,000.
Data provided by Blick Rothenberg suggests that the 1p cut to the basic rate of income tax will save those earning £15,000 a year £24.30 a year.
Those earning £25,000 a year will save £124.30 and workers with incomes of £35,000 a year will save £224.30.
Those earning £50,000 a year will save £374.
The basic rate of income tax is paid by all workers earning between £12,571 and £50,270 a year.
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Workers in England, Northern Ireland and Wales were originally set to see the basic rate of income tax fall by one percentage point from 20% to 19% from April 2024.
However, the new Chancellor has brought the policy forward.
Workers only start paying income tax once they start earning over the personal allowance – which currently stands at £12,570.
Any income earned up to £12,570 is tax-free.
However, this amount may be bigger if you claim certain allowances including, blind person’s allowance, marriage allowance and child tax credit.
Right now all earnings between £12,570 and £50,270, are liable to pay the basic income tax rate of 20%.
Wages of £50,271 and above are taxed at the higher rate of 40%.
And the additional rate of income tax, which applies to earnings above £150,000, is 45%.
The thresholds for income tax generally rise each year so that people can earn more without paying more tax.
However, the previous government froze income tax thresholds until 2026 and it is unclear if this policy will remain in place under the fresh Conservative government.
What else was announced in the mini Budget?
The Chancellor also confirmed that the 1.25% point rise to National Insurance will be scrapped later on this year.
The move will mean 28 million workers will save an average of £330 a year.
National Insurance is paid by employees aged over 16 and earning above £242 a week.
It’s also paid by self-employed Brits making a profit of £6,725 or more a year.
Elsewhere in today’s mini-budget, the Chancellor confirmed:
- A planned corporation tax rise will be ditched
- Stamp duty will be cut for millions of people buying homes
- New low tax investment zones will help level up the economy and deliver growth
- Benefit claimants will face tougher penalties for failing to look for work