Steven Cameron, Pensions Director at Aegon, has commented on today’s emergency budget.
“The government’s decision to cut the basic rate of income tax from 20% to 19% from April 2023, a year earlier than planned, will mean millions can keep more of what they earn. However, income tax thresholds are currently frozen until 2026 and over time, wage increases mean people are paying tax on more of their income, and in some cases are being dragged into paying higher rate tax. This is a particular issue in the current climate as soaring inflation has accelerated wage increases.
“While this is a welcome boost to take-home pay, for many it will fail to compensate for frozen income tax thresholds. Unfreezing these would be a much more powerful lever to support lower and modest earning households. For anyone earning under £37,670, increasing the basic rate threshold by 10%, around the current rate of inflation, would offer a greater income tax saving than cutting the rate of income tax from 20% to 19%.
“Aegon analysis shows that a 10% increase in the current threshold for paying basic rate income tax would save people earning above £13,827 around £250 over a year in income tax. This is based on the basic rate of income tax of 20% in England.
“Different income tax rates apply in Scotland, so individuals will have to wait to see if the Scottish Government makes equivalent changes.”
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Also, be sure to read our update right here on IFA Magazine.