Income tax: Personal allowances rise today – savings tips shared on ISAs, pensions & debt

Rishi Sunak may have to break income tax promise says expert

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Rishi Sunak recently took action in income tax rates in his 2021 Budget, as the Chancellor announced major changes in a bid to help consumers. The personal allowance has risen today to £12,570 and the basic rate limit rose to £37,700 but the Chancellor confirmed these will remain unchanged until 2026.

The Chancellor detailed the following in March’s Budget: “So this government is not going to raise the rates of income tax, national insurance, or VAT.

“Instead, our first step is to freeze personal tax thresholds.

“We’ve nearly doubled the income tax personal allowance over the last decade, making it the most generous of any G20 country.

“We will of course deliver our promise to increase it again next year to £12,570, but we will then keep it at this more generous level until April 2026.

“The Higher Rate threshold will similarly be increased next year, to £50,270, and will then also remain at that level for the same period.”

Along with the personal allowance increase, the new tax year brings with it new opportunities to plan financially for the coming months as ISA, pension and other financial rules are reset.

However, Anthony Morrow, the co-founder of OpenMoney, urged savers not to rush into any financial commitments.

Anthony explained: “Just because you have a new allowance [today] doesn’t mean you should rush to get your money in an ISA instantly. Think carefully before choosing an ISA provider, and do your research before making a decision.

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“What’s right for someone else might not be right for you.

“To give you a starting point, think about the charges involved, the level of risk you are comfortable with, and the service and advice offered by the provider.

“The ISA rules mean that you can only contribute to one of each type ISA per tax year, so decide wisely.

“Don’t forget, there is also the opportunity to consolidate your existing plans without impacting the new tax year allowances. Here at OpenMoney we review existing schemes and look at what is suitable for clients, free of charge.

“The start of the tax year gives a real opportunity for people to reevaluate their finances, and to get their priorities or financial foundations in place before deciding whether or not to invest.

“We’d advise creating different pots of money for the different goals or objectives you have this year, such as an emergency fund, short term cash savings, medium term S&S ISA or investment accounts, long term pension/LISA etc.

“The increase on the personal allowance threshold is limited this year, so while it will result in people having a marginally higher net income after taxes, people shouldn’t rely on changes to materially influence their savings strategy.

“The additional income is however ‘free’ relative to this tax year, and so it could be used to pay down on debts or overdrafts for anyone with unsecured debt.”

Income tax is levied on multiple, though not all, forms of income.

This includes money from employment, profits from self-employment, some state benefits and pensions.

for employed workers, income tax will be deducted through PAYE, the system employers or pension providers use to deduct tax costs before wages are paid.

Self-employed workers face slightly more complex realities as they’ll need to fill in a yearly Self Assessment and pay their tax dues manually.

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