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Budget 2011: Income tax and allowances

The chancellor of the exchequer announced in the Budget that the personal allowance for people under 65 will rise by a further £630 to £8,105 in 2012-13. In addition, the 50 per cent income tax rate introduced by Labour will be reviewed to establish how much income it raises, with the intention of abolishing it when conditions improve.

As previously announced, the personal allowance for people under the age of 65 will rise by £1,000 to £7,475 in 2011-12. To ensure that the increase targets help on the less well off, the threshold at which the higher rate starts has been reduced to £35,000. For the better off, this reduction will increase the amount of income taxed at the higher rate, cancelling out the benefit from the increase in personal allowance. Other allowances and thresholds have been uprated in line with price inflation up to September 2010. Age-related allowances will rise to £9,940 (65 to 74) and £10,090 (over-75s).

The limit at which the higher age-related allowances start to be lost will increase from £22,900 to £24,000.

The personal allowance will continue to be reduced for people of all ages with income over £100,000 a year (£1 of allowance is lost for each £2 of income over the £100,000 threshold), and additional-rate tax will continue to apply for earnings over £150,000.

The chancellor has announced that increases to income tax allowances and bands will be linked to CPI inflation from April 2012 onwards.

The Budget announced that the charge for non-domiciled individuals who have been resident in the UK for 12 years or longer will be increased to up to £50,000.

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