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British Workers’ Take-Home Pay To Rise Thanks To Tax Changes

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Brits should have more money in their pockets thanks to changes to the UK personal allowance that take effect this tax year.

UK workers will be breathing a sigh of relief this month as they see their take-home salaries increase following an rise in the tax-free personal allowance.

The hike introduced by Chancellor Philip Hammond in last year’s Budget, which comes into effect in the new tax year this April, means Brits can now earn more before they begin paying income tax on their earnings.

Basic rate tax payers – those earning up to £45,000 – can now earn up to £11,850 before incurring income tax (previously £11,500), while the threshold at which workers incur higher rate tax also increases from £45,000 to £46,350.

Average worker ‘£1,075 better off’, says UK Government

Hammond said in 2017 that the average worker should find themselves paying £1,075 less tax in the 2018-19 tax year.

UK staff earning the National Living Wage should also take home £3,800 a year more in wages, according to the Treasury.

In last year’s Budget, Hammond said that the hike demonstrated “progress towards our manifesto commitments”.

The Conservative Government has pledged to increase the personal allowance to £12,500 by 2020 as well as the higher rate tax threshold to £50,000.

“We want families to keep more of the money they earn,” said Hammond in his Budget speech. “When we came into office the personal allowance stood at £6,475.”

The National Living Wage also increases by 4.4% from £7.50 an hour to £7.83.

Knock-on effect on pensions savings, says Aegon

However, the increase in the higher rate tax threshold could have an adverse effect on pension savings, says Kate Smith, head of pensions at Aegon, an investment firm.

“Some will move out of the higher rate tax bracket and become basic rate tax payers,” she says. “This affects pension saving as individuals receive tax relief, or a Government top-up, on their own contributions, based on their highest marginal income tax rate of 20%, 40% or 45%.

“Moving more people into the basic rate tax bracket means the Government top-up is halved.”

Council tax bill hike hits UK households

Another spanner in the works for hard-pressed British households is that council tax – the amount home occupiers pay local councils for services, such as policing and refuse collection – is set to increase on average by £81 per household this year, the biggest hike for 14 years.

Those paying the highest rate of council tax, based on the valuation of properties, could see their bills rise by £86 to £1,749, says the Ministry of Housing, Communities and Local Government, while householders living in England’s Band D properties could pay 5.1% more or £1,671.

Note: The opinions expressed in this article are the author's own and do not necessarily reflect the view of Alvexo on the matter.