Income Tax Calculator: How Much Will Kwasi Kwarteng Discounts Save You? | Personal finance | Finance
In his first political speech as chancellor, Kwasi Kwarteng announced a major overhaul of the tax code. The basic rate of income tax will be reduced for the first time in 15 years to its lowest level ever, and the additional rate imposed on top earners will be eliminated entirely. Along with a series of other measures, the government has made it clear that it sees economic growth as the way out of the current crisis.
In March, then-Chancellor Rishi Sunak announced plans to cut the basic rate of income tax from 1% to 19% before the end of Parliament in 2024.
Under plans announced by Mr Kwarteng on Friday, that reduction will now be brought forward by a year – taking effect from the start of the next financial year in April 2023.
The Chancellor claimed 31 million people will benefit from the policy, allowing them to keep an extra £170 on average.
Mr Kwarteng said: ‘This means we will have one of the most competitive and growth-friendly income tax systems in the world.’
The total value of the tax cut for workers, savers and pensioners is over £5billion according to the government.
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The current income tax system is divided into four brackets: personal allowance, basic rate, higher rate and additional rate.
All income up to £12,570 is tax free – this is the personal allowance. The base rate of 20% applies to annual earnings between £12,571 and £50,270.
Annual earnings between £50,271 and £150,000 are taxed at the top rate of 40%.
Every pound earned over £150,000 is currently taxed at the additional rate of 45%.
In Friday’s mini-budget, Mr Kwarteng announced that this additional rate of income tax would be eliminated entirely.
From 6 April 2023, the top rate of 40% will become the top rate at which all income over £50,271 will be taxed.
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The Treasury says it will cut taxes for around 660,000 people from April next year.
The removal of the additional rate was also hailed as a measure to simplify the tax system which would improve the UK’s competitiveness. According to the government, 25 of the 38 OECD countries had four or more personal tax rates in 2021.
The provision which reduces the non-taxable personal allowance from £12,570 to a rate of £1 for every £2 earned over the £100,000 threshold – thus disappearing entirely after £125,140 – remains unchanged.
So how much tax will you save next year with the new rate? Enter your earnings in the search box below to find out…
These two changes to the tax code apply to income other than savings and dividends for people in England, Wales and Northern Ireland – income tax rates differ in Scotland.
Mr Kwarteng also confirmed that the government would cancel the latest 1.25% National Insurance hike on November 6, as well as the planned increase in corporation tax next year.
The cap on bankers’ bonuses will also be scrapped and the threshold below which no stamp duty is payable on the purchase of a house will be doubled to £250,000.
This is all part of the 2022 growth plan, prioritizing an expansion of the UK economy above all else with a target rate of 2.5% per year.
The Chancellor said: “For too long in this country, we have been engaged in a struggle for redistribution. Now we need to focus on growth, not just how we tax and spend.