Income tax cuts will benefit 31 million workers
The amount people can earn before being hit by income tax will rise to £11,500 in April 2017, benefiting millions of workers.
The move will cut taxes for 31 million people, according to the Treasury, and will mean 1.3 million low-wage workers are taken out of paying income tax altogether.
Also from April 2017, higher earners will be able to make up to £45,000 without being hit by the 40p rate of income tax – a tax cut of over £400 a year.
The personal allowance has steadily increased since 2010 and will reach £11,000 in April this year, while the 40p rate currently starts at £42,385.
George Osborne said the changes meant basic rate taxpayers will be paying over £1,000 less income tax than when he became Chancellor.
The increase in the higher rate threshold would take more than 500,000 people out of the 40p band.
“It’s the biggest above-inflation cash increase since Nigel Lawson introduced the 40p rate almost 30 years ago,” Mr Osborne said.
“We were elected as a government for working people and we have delivered a Budget for working people.”
The increases in the personal allowance and 40p threshold will cost the Exchequer more than £2 billion in lost income tax receipts in 2017/18.
The self-employed were also given a tax cut, as Mr Osborne scrapped class 2 National Insurance contributions (NICs) from 2018.
“That’s a simpler tax system and a tax cut of over £130 for each of Britain’s three million-strong army of the self-employed,” Mr Osborne said.
Currently, self-employed people have to pay Class 2 NICs at £2.80 per week if they make a profit of £5,965 or over per year. They also pay Class 4 NICs if their profits are over £8,060 per year.
From April 2018, they will only need to pay Class 4 NICs.
The headline rate of Capital Gains Tax was slashed from 28% to 20%, with the level for basic rate taxpayers cut from 18% to 10%.
Explaining the change, Mr Osborne said: “Our Capital Gains Tax is now one of the highest in the developed world, when we want our taxes to be among the lowest.”
The new rates will come into force in April, but the old rates will be kept in place for residential property and carried interest.
The decision to exclude residential property was criticised as an attack on buy-to-let landlords, who will be hit with a higher rate than people who benefit from shares and other investments.
The sale of a primary residence is exempt from capital gains tax, but people selling a house which is not their home will be hit.
Patricia Mock, tax director at Deloitte, said: “It’s another blow to the buy-to-let market as the reduced rate will not apply to residential property. Much of this is exempt anyway as the main residence, so this will hit buy-to-let investors and second home owners, who of course will already be paying additional stamp duty land tax from April 1.”
Jo Bateson, tax partner at KPMG, said it was “another penal tax rate being applied to landlords”.