Budget 2021: Income tax rates and thresholds confirmed 

03 March 2021

HMRC published various income tax parameters in early February, in advance of the delayed Budget so that employers and payroll software developers had enough time to prepare for the start of the tax year. Today, these figures were confirmed, alongside important announcements about future parameters. 

2021-22 tax year 

As expected, the Personal Allowance for tax-free income will increase to £12,570 and the Higher Rate Threshold (HRT), when higher earners start to pay 40% tax, will increase to £50,270. 

Documents published alongside the Budget Statement confirmed that the Marriage Allowance (also known as the Transferable Tax Allowance) will increase to £1,260 and the Blind Person’s Allowance will increase to £2,520. The maximum Married Couple’s Allowance will increase to a maximum of £9,125 (minimum £3,530) with an income limit of £30,400. 

Income tax bands for rUK (UK excluding Scotland) will be: 

  • Basic rate: £1 to £37,700 

  • Higher rate: £37,701 to £150,000 

  • Additional rate: over £150,000. 

The basic rate limit and Higher Rate Threshold changes apply to non-savings, non-dividend income in England, Wales and Northern Ireland, and to savings and dividend income in the UK. 

UK income tax rates remain unchanged. 

Future tax years 

Following speculation about when and how the Chancellor would begin to ‘balance the books’ after spending such huge amounts of public money on the Government’s coronavirus response, his announcement of a freeze in tax allowances came as no surprise. 

The Personal Allowance, income tax bands and the Higher Rate Threshold will be frozen at their 2021-22 levels for the following four tax years, up to and including 2025-26. 

Devolved income tax 

The Scottish Government’s Budget for 2021-22 was recently approved by Parliament (25 February). The rates remain unchanged with only the starter and basic rate bands and the Higher Rate Threshold receiving an increase (in line with inflation), with the result that all Scottish taxpayers will pay a little less tax in 2021-22 than in 2020-21 on current incomes. 

Income tax bands for Scotland will be: 

  • Starter rate (19%): £1 to £2,097 

  • Basic rate (20%): £2,098 to £12,726 

  • Intermediate rate (21%) £12,727 to £31,092 

  • Higher rate (41%): £31,093 to £150,000 

  • Top rate  (46%): over £150,000. 

The Welsh Government’s Budget for 2020-21 has also been approved (2 March). In line with its commitment for the duration of the current term of the Senedd (parliament), the Welsh Government has set the Welsh Rates of Income Tax (WRIT) at 10p in the pound. Welsh rates are added to the UK rates after deducting 10p in the pound for each band, so the net effect for Welsh taxpayers is that they are subject to the same basic, higher and additional rates as taxpayers in England and Northern Ireland. 

The Budget document can be accessed in full here.

 


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