Campaigners are calling for changes to tax rules (Image: Getty)
Major changes to the tax system could ease the financial burden of millions of families. The update comes as some key tax changes are coming up in less than a year’s time.
Campaigners have launched a petition to Parliament calling for the personal allowance to be increased to £20,000. The allowance sets how much you can earn each tax year without paying income tax.
The current allowance is £12,570, with Labour confirming it will stay at this level until at least April 2031. If the threshold went up to £20,000, a basic rate taxpayer who uses the full allowance would pay £1,486 less in tax each year.
‘Workers pay more tax’
The petition urges: “The personal allowance has been frozen while living costs have risen, meaning workers pay more tax in real terms. Increasing it to £20,000 would put more money into millions of workers’ pockets, helping with rising bills and supporting low and middle earners.”
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“The personal allowance has been frozen since 2021 while living costs have risen sharply, meaning workers are paying more tax in real terms. As wages increase slightly to keep up with inflation, more people are pulled into paying tax or higher rates.”
The basic rate of income tax is currently 20 percent. In England and Wales, you pay the higher rate on your income above £50,270 and the additional rate of 40 percent on your income above £125,140.
Another rule concerning the personal allowance to bear in mind here is that once your income moves above £100,000, you start to lose your personal allowance. You lose £1 of personal allowance for each £2 you earn over the £100,000 threshold.
Putting money in people’s pockets
This means you get zero allowance once your income reaches £125,140. The petition also urges: “Increasing the threshold to £20,000 would put more money into millions of workers’ pockets, ease financial pressure, and support low and middle earners during a cost of living crisis.”
If the petition gets 10,000 signatures, the Government will issue a response. If 100,000 people sign their support, the issue will be considered for debate in Parliament.
This is not the first time the general public has launched a petition for the personal allowance to be increased. Another petition calling for an increase to £18,000 has had more than 36,000 signatures to date.
Another popular petition likewise called for an increase to £20,000, with more than 94,000 people pledging their support. Some key changes are coming up soon that taxpayers may want to make a note of.
Tax changes coming in soon
The rates you pay on your taxable interest earnings is going up from April 2027, increasing by two percentage points for each tax band. The current rates are the same as the standard income tax rates.
So with the changes, the rate for basic rate taxpayers is increasing to 22 percent, for the higher rate to 42 percent and for the additional rate, to 47 percent.
The annual ISA allowance is also being trimmed. Currently, you can deposit up to £20,000 each tax year into these tax-free accounts, divided as you choose between stocks and shares or cash accounts.
But under the new regime, you will only be able to use up to £12,000 of this allowance for deposits into cash accounts. The other £8,000 will only be available for deposits into investment-based accounts.
Another key tax change from 2027 is that inheritance tax is expanding so most unused pension funds will become liable for the 40 percent tax.
