Income tax: Over 50s could be made exempt as Rishi Sunak urges Britons back to work | Personal Finance | Finance
Ministers are looking at giving people over 50 a “bigger tax allowance” for a year, to encourage them to get the back into work, according to The Times. Many older Britons have opted to stay out of employment since the COVID-19 pandemic.
A source told The Times: “The biggest challenge we’re facing is how to get people back into the workforce.
“There’s a discussion in the Treasury about how to use the tax system, whether people could be given a bigger tax allowance during the first few years they are back in work.”
Exempting workers over 50 from income tax could save them thousands of pounds a year, particularly for those on the higher rates.
For a person with a yearly income of £30,000, who would normally be on the basic rate of 20 percent, being exempt for a year would save them £12,000 in taxes.
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The higher rate for income tax, at 40 percent, applies to earnings between £50,271 and £150,000, while the additional rate of 45 percent applies to earnings above £150,000.
The personal allowance is gradually withdrawn after a person’s earnings surpass £100,000 a year, and they lose the allowance entirely once they earn more than £125,140 a year.
Chancellor Jeremy Hunt announced in the Autumn Statement he would freeze income tax thresholds until 2028, meaning working Britons will have to pay more tax as salaries increase.
Research from AJ Bell found workers’ tax bills will increase by 3.5 percent because of the freeze.
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Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said freezing the income tax thresholds will have a big impact on workers.
She warned: “The round of tax hikes in the Autumn Statement made for miserable reading, but even before that we were on for higher tax bills, because the freezing of the income tax thresholds means that wage rises will push more people into paying more tax – and push enormous numbers of people into higher tax bands.
“These kinds of stealth taxes tend to slip under the radar but can have a much bigger impact than a tax hike.
“The Institute of Fiscal Studies estimates that freezes to personal tax thresholds will cut household income by an average of £1,250 by 2025/26.”
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The additional rate threshold is to be lowered from £150,000 to £125,140 in April, meaning more workers will be hit by the 45 percent rate.
Investors will see their earnings hit by more capital gains tax from April, as the annual allowance is to be slashed from £12,300 to £6,000, with the allowance to be reduced to £3,000 next year.
Ms Coles said: “Having invested diligently for the long term to build their financial resilience, it’s going to feel particularly unfair to be trapped by this allowance-cutting pincer movement.”
Britons are also set to be hit by a council tax hike in April, as local authorities can charge up to five percent without holding a referendum on the increase.
This is because the core referendum limit for increases in council tax is going up from two percent to three percent, while the adult social care precept flexibility is increasing from one percent to two percent.
Hargreaves Lansdown warned the average Band D council tax bill could increase from £1,966 a year to as much as £2,064.
John O’Connell, chief executive of the TaxPayers’ Alliance, warned previously that raising council tax will increase the burden on Britons struggling with soaring cost of living.
He said: “Raising the cap on council tax rises will leave households exposed to surging bills.
“Local authorities are undoubtedly facing higher overheads, but significant rate increases can’t be justified while vanity projects and exorbitant salaries persist.
“Instead of expecting taxpayers to bear a greater burden, councils must rein in wasteful spending and commit to keeping costs down.”
