Ahead of the March Budget, rumours have been circulating regarding what tax changes Chancellor Rishi Sunak plans to make. Reportedly, the Treasury may be planning to freeze personal income tax allowances for the two lower tax thresholds. This would mean that the thresholds £12,500 and £50,000 would not rise in line with inflation.
Currently, basic rate taxpayers can earn £12,500 annually without paying income tax. This figure is expected to rise every year in line with inflation however, the Chancellor is reportedly considering freezing the income tax personal allowance, which would see people paying more tax. By freezing the income tax personal allowance, it would cost the average family £250 per year by 2024/25, which could raise up to £6bn for the government.
The threshold for basic rate taxpayers is forecast to reach £13,250 by 2024. Meanwhile, the £50,000 limit is expected to rise to £53,000 by 2024.
As the government tries to raise funds to pay for the coronavirus pandemic, Labour has warned that increasing taxes would leave some people and businesses in a worse financial position due to the economic damage that the pandemic has caused. Labour has stated that any tax rises should only be introduced once the economy have recovered to a stable position.
The Chancellor is expected to address the rumours in the Budget announcement on 3rd March 2021.
