The government has increased the personal allowance by an additional £1,100 as part of its objective to make the first £10,000 of income tax free from tax.
During his presentation of the Budget report, Chancellor George Osborne announced that in April 2013 the personal allowance would rise to £9,205.
The personal allowance is currently £7,475 and, as stipulated in the 2011 Budget, it will go up to £8,105 from April, before rising to £9,205 in April 2013.
Osborne said: “This is the largest increase in the level of the personal allowance in both cash and real terms for the last thirty years, and the largest real personal tax cut for the median earner in over a decade.”
According to Zoe Lynch, a partner at Sackers and Partners, the increase to the personal allowance could mean that fewer low earners will opt-out of pension schemes once they have been auto-enrolled.
She said: “For lower earners, this could make the difference between being able to afford to pay into a pension scheme when auto-enrolment bites later in the year. In a best case scenario this would improve the opt-out rates.
“The one thing the government needs to be careful of is the auto-enrolment earnings thresholds. The top rate is currently tied to the personal allowance, but this is currently being consulted on.†
“If this is increased by the same inflation-busting amount, it risks people falling under the auto-enrolment thresholds and missing out on savings altogether. One to watch.”
For more articles on measures in the 2012 Budget