HMRC Income tax personal allowance could rise from £12,570 to £20,000

A petition calling for an increase in the UK’s income tax personal allowance from £12,570 to £20,000 has gained significant support, with over 133,000 signatures and growing. The proposal aims to provide financial relief to low-income earners and pensioners by reducing their tax burden and boosting disposable income. Here’s a closer look at what this petition means, why it matters, and how it could impact the economy if implemented.

Why Is There a Petition to Raise the Personal Allowance?

The petition, started by Alan David Frost, argues that raising the personal allowance to £20,000 would:

• Help low earners move off benefits by increasing their take-home pay.
• Give pensioners a fairer income by reducing the tax on State Pensions.
• Inject more money into the economy, potentially driving economic growth.

Key Quote from the Petition:
“We think it is abhorrent to tax pensioners on their State Pension when it is over the personal allowance.”

Current Status of the Petition

As of now, the petition has:

• 133,915 signatures – surpassing the 100,000 threshold needed for Parliament to consider a debate.
• Awaiting a debate date, as confirmed on the official Parliament petitions website.

Did you know?
Once a petition hits 10,000 signatures, the Government must respond. With 100,000 signatures, it must be considered for debate.

Understanding the Personal Tax Allowance

The Personal Allowance is the amount of income you can earn before paying income tax.

Current Allowance:

• £12,570 per year for most individuals.

Exceptions:

• High Earners: If your income exceeds £100,000, your allowance decreases by £1 for every £2 earned.
• Frozen Since 2021: The threshold was frozen until April 2028, meaning more people are moving into higher tax brackets due to wage growth and inflation.

How Raising the Allowance Could Help

If the proposal to increase the allowance to £20,000 is approved:

1. Low earners could earn more without losing part of their income to tax.
2. Pensioners might avoid being taxed on their State Pension.
3. Economic growth could get a boost as more money flows into the consumer economy.

Example Impact:

• A person earning £20,000 currently pays tax on £7,430 (£20,000 – £12,570).
• If the threshold increased to £20,000, they would pay no income tax, potentially saving £1,486 per year.

Special Allowances for Couples

1. Marriage Allowance

If you’re married or in a civil partnership, and one partner earns less than £12,570, you might transfer up to £1,260 of your allowance to your spouse.

Potential Tax Savings: £252 per year.

2. Married Couple’s Allowance

If either partner was born before April 6, 1935, you might qualify for additional tax relief.

Why Was the Allowance Frozen?

The Personal Allowance was frozen in 2021 by the Conservative Government to stay at £12,570 until April 2028.

• This policy, known as fiscal drag, increases tax revenue by pushing more people into higher tax brackets as wages rise.

Potential Economic Impact

Benefits:

• More disposable income for low earners and pensioners.
• Potential increase in consumer spending.
• Reduced dependency on benefits.

Challenges:

• Lower tax revenue for the government, potentially impacting public services.
• Inflation concerns if increased spending fuels price rises.

What Happens Next?

Since the petition has exceeded 100,000 signatures, Parliament is now required to consider a debate.

If you’re interested, you can still sign the petition on the official Parliament website to add your support.

Raising the income tax personal allowance to £20,000 could ease the tax burden for low earners and pensioners, providing more disposable income and potentially stimulating economic growth. However, the government must carefully weigh the benefits against the potential loss of tax revenue. With over 133,000 signatures, the petition has already made an impact, and the upcoming parliamentary debate could determine the future of this proposal.

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