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This publication is available at https://www.gov.uk/government/publications/income-tax-personal-allowance-and-the-basic-rate-limit-from-6-april-2022-to-5-april-2026/income-tax-personal-allowance-and-the-basic-rate-limit-from-6-april-2022-to-5-april-2026
Who is likely to be affected
Income taxpayers, National Insurance contributions payers, employers and pension providers.
General description of the measure
This measure will maintain the Personal Allowance and basic rate limit at their 2021 to 2022 levels up to and including 2025 to 2026. It will set the Personal Allowance at £12,570, and the basic rate limit at £37,700 for tax years:
- 2022 to 2023
- 2023 to 2024
- 2024 to 2025
- 2025 to 2026
The higher rate threshold (the Personal Allowance added to the basic rate limit) will be £50,270 for these years. The National Insurance contributions Upper Earnings Limit and Upper Profits Limit will remain aligned to the higher rate threshold at £50,270 for these years.
From 2026 to 2027 onwards, existing legislation means that the default is for the Personal Allowance and basic rate limit to be indexed with Consumer Price Index (CPI).
Policy objective
This policy takes steps to make sure the sustainability of the public finances and fund our vital public services in a fair and sustainable way.
Background to the measure
This measure was announced at Budget 2021.
Changes to the Personal Allowance will apply to the whole of the UK.
Changes to the basic rate limit, and higher rate threshold, will apply to non-savings and non-dividend income in England, Wales and Northern Ireland and to savings and dividend income in the UK. Since April 2017, the Scottish Parliament sets the basic rate limit and higher rate threshold for non-savings, non-dividend income for Scotland. Changes to the National Insurance contributions Upper Earnings Limit and Upper Profits Limit will apply to the whole of the UK.
Detailed proposal
Operative date
The measure will have effect on and after 6 April 2022.
Current law
The Personal Allowance is indexed with CPI under section 57 of the Income Tax Act 2007.
The basic rate limit is also indexed with CPI, under section 21 of the Income Tax Act 2007.
The Personal Allowance is set at £12,570 for 2021 to 2022, and the basic rate limit is set at £37,700 for 2021 to 2022.
The higher rate threshold is equal to the Personal Allowance added to the basic rate limit. As a result, the higher rate threshold will be £50,270 in 2021 to 2022.
The National Insurance contributions Upper Earnings Limit and Upper Profits Limit are set at £50,270 for 2021 to 2022.
Proposed revisions
Legislation will be introduced in Finance Bill 2021 to set the Personal Allowance for 2022 to 2023 at £12,570, and the basic rate limit for 2022 to 2023 at £37,700.
These thresholds will remain set at £12,570 and £37,700 for 2023 to 2024, 2024 to 2025, and 2025 to 2026, and the legislative default is that they would rise in line with CPI thereafter.
The following table sets out the thresholds to include the changes from this measure.
| 2022 to 2023 | 2023 to 2024 | 2024 to 2025 | 2025 to 2026 | |
|---|---|---|---|---|
| Personal Allowance (PA) | £12,570 | £12,570 | £12,570 | £12,570 |
| Basic rate limit (BRL) | £37,700 | £37,700 | £37,700 | £37,700 |
The National Insurance contributions Upper Earnings Limit and Upper Profits Limit will remain aligned to the higher rate threshold at £50,270 for:
- 2022 to 2023
- 2023 to 2024
- 2024 to 2025
- 2025 to 2026
The National Insurance contributions Upper Earnings Limit and Upper Profits Limit will be legislated for in the annual setting of National Insurance contributions rates, limits and thresholds as standard.
Summary of impacts
Exchequer impact (£million)
| 2020 to 2021 | 2021 to 2022 | 2022 to 2023 | 2023 to 2024 | 2024 to 2025 | 2025 to 2026 |
|---|---|---|---|---|---|
| – | negligible | +1,555 | +3,655 | +5,790 | +8,180 |
The figures for these measures are set out in Table 2.1 of Budget 2021 as ‘Personal Allowance and higher rate threshold: set at £12,570 and £50,270 in 2022 to 2023 to 2025 to 2026’ and have been certified by the Office for Budget Responsibility (OBR). More details can be found in the policy costings document published alongside Budget 2021.
Economic impact
The OBR have incorporated the impact of this policy in their economy forecast to account for the temporary impact on consumption from this measure. More details can be found in their March 2021 Economic and Fiscal Outlook.
This measure is not expected to have any significant long-run macroeconomic impacts.
An adjustment was made to take account of the behavioural response.
Impact on individuals, households and families
The impact analysis that follows relates specifically to the impact of the legislative provisions outlined above. Gains and losses are presented compared to the income tax and National Insurance contributions individuals would have faced if these thresholds were indexed with CPI from 2022 to 2023 onwards.
From 2022 to 2023, this measure will impact 32.5 million individuals, of whom 27.7 million will be basic rate taxpayers, 4 million will be higher rate taxpayers, and 475,000 will be additional rate taxpayers. A basic rate taxpayer will have an average real loss of £41, a higher rate taxpayer will have an average real loss of £165, and an additional rate taxpayer will have an average real loss of £73.
There will be 479,000 individuals with an average real gain of £35 in 2022 to 2023. These gains include Scottish higher rate taxpayers and part-time workers (or individuals with fluctuating incomes) who do not lose from maintaining the higher rate threshold but benefit from maintaining the Upper Profits and Upper Earnings Limits for National Insurance contributions.
The measure will bring 319,000 individuals into income tax in 2022 to 2023, and 186,000 individuals into the higher rate of income tax compared to if these thresholds were indexed with inflation.
By 2025 to 2026, the final year of this measure, it will impact 33.3 million individuals, of whom 27.1 million will be basic rate taxpayers, 4.3 million will be higher rate taxpayers, and 591,000 will be additional rate taxpayers. A basic rate taxpayer will have an average real loss of £196, a higher rate taxpayer will have an average real loss of £734, and an additional rate taxpayer will have an average real loss of £324.
There will be 1.9 million individuals with an average real gain of £80 in 2025 to 2026. These gains include Scottish higher rate taxpayers and part-time workers (or individuals with fluctuating incomes) who do not lose from maintaining the higher rate threshold but benefit from maintaining the Upper Profits and Upper Earnings Limits for National Insurance contributions.
The measure will bring 1.3 million individuals into income tax by 2025 to 2026, and 1 million individuals into the higher rate of income tax compared to if these thresholds were indexed with inflation.
Actual gains for individual taxpayers will vary according to individual circ*mstances.
This measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
Income tax changes apply regardless of personal circ*mstances or protected characteristics such as gender, race or disability. Equalities impacts will reflect the composition of the income tax paying population.
From this measure, 2022 to 2023 estimated impacts by gender are:
- 32.5 million individuals will lose – of these, 18.9 million (58%) are male and 13.7 million (42%) are female
- 319,000 individuals will be brought into tax – of these, 142,000 (45%) are male and 177,000 (55%) are female
- 186,000 individuals will be brought into the higher rate of tax – of these, 128,000 (69%) are male and 58,000 (31%) are female
- 479,000 individuals will gain from the proposed measure, of which 306,000 (64%) are male and 173,000 (36%) are female
From this measure, 2022 to 2023 estimated impacts by age are:
- 32.5 million individuals will lose – of these, 25.5 million (78%) are below State Pension age and 7 million (22%) are above State Pension age
- 319,000 individuals will be brought into tax – of these, 210,000 (66%) are below State Pension age and 109,000 (34%) are above State Pension age
- 186,000 individuals will be brought into the higher rate of tax – of these, 164,000 (88%) are below State Pension age and 22,000 (12%) are above State Pension age
- 479,000 individuals will gain from the proposed measure, of which more than 99% are below State Pension age
From this measure, 2025 to 2026 estimated impacts by gender are:
- 33.3 million individuals will lose – of these, 19 million (57%) are male and 14.3 million (43%) are female
- 1.3 million individuals will be brought into tax – of these, 565,000 (42%) are male and 776,000 (58%) are female
- 1 million individuals will be brought into the higher rate of tax – of these, 671,000 (67%) are male and 331,000 (33%) are female
- 1.9 million individuals will gain from the proposed measure, of which 1.3 million (67%) are male and 622,000 (33%) are female
From this measure, 2025 to 2026 estimated impacts by age are:
- 33.3 million individuals will lose – of these, 25.6 million (77%) are below State Pension age and 7.7 million (23%) are above State Pension age
- 1.3 million individuals will be brought into tax – of these, 873,000 (65%) are below State Pension age and 467,000 (35%) are above State Pension age
- 1 million individuals will be brought into higher rate of tax – of these, 877,000 (88%) are below State Pension age and 124,000 (12%) are above State Pension age
- 1.9 million individuals will gain from the proposed measure, of which more than 99% are below State Pension age
Impact on business including civil society organisations
This measure is expected to have a negligible impact on businesses and civil society organisations. An individual’s Personal Allowance is reflected in their PAYE tax code. Any changes to individuals’ tax codes are a routine annual event for employers and pension providers. Non-routine changes are handled by HMRC.
Operational impact (£million) (HMRC or other)
There will be no operational impacts on HMRC.
Other impacts
None have been identified.
Monitoring and evaluation
The measure will be kept under review through communication with affected taxpayer groups and will be monitored through information collected from tax receipts.
Further advice
If you have any questions about this change, contact the Income Tax Structure and Earnings team by email: incometax.structure@hmrc.gov.uk.
As a tax policy expert with extensive knowledge in fiscal matters, I can confidently delve into the intricacies of the article on income tax, personal allowance, and basic rate limits from April 6, 2022, to April 5, 2026, in the UK. My expertise is underscored by a comprehensive understanding of the legislative framework, economic impacts, and the nuanced details presented in the document.
The article outlines the maintenance of the Personal Allowance and basic rate limit at their 2021 to 2022 levels until the tax year 2025 to 2026. The Personal Allowance is fixed at £12,570, and the basic rate limit at £37,700 for the years 2022 to 2026. The higher rate threshold, calculated by adding the Personal Allowance to the basic rate limit, is set at £50,270 for the same period. Notably, from 2026 to 2027, default legislation dictates indexing these thresholds with the Consumer Price Index (CPI).
The policy's primary objective is to ensure the sustainability of public finances and support essential public services in a fair and sustainable manner, as highlighted in the background of the measure. The origins of this policy can be traced back to the Budget 2021 announcement.
Crucially, the legislative proposal includes the introduction of Finance Bill 2021 to establish the Personal Allowance and basic rate limit for the tax year 2022 to 2023 at £12,570 and £37,700, respectively. These figures will persist until 2025 to 2026, with a default provision for indexing them with CPI thereafter.
The article provides a detailed impact assessment, with the Exchequer impact indicating an increase in revenue over the years 2022 to 2026. The economic impact, as per the Office for Budget Responsibility (OBR), considers temporary effects on consumption, with no significant long-run macroeconomic impacts anticipated.
The individual impact analysis delves into the effects on taxpayers, considering different income levels. It predicts gains and losses for various taxpayer categories, such as basic rate, higher rate, and additional rate taxpayers, providing average real losses and gains.
The equality impact assessment examines the effects based on gender and age, with estimates for the years 2022 to 2023 and 2025 to 2026. The article also addresses potential impacts on businesses, civil society organizations, and operational considerations for HMRC.
In conclusion, this tax policy measure aims to maintain fiscal stability, contribute to public services, and has been subjected to thorough economic and individual impact assessments. The proposed legislation reflects a nuanced approach to taxation in the UK, with a commitment to periodic review and evaluation.
