Basic rate of income tax cut to 19%

The Chancellor Kwasi Kwarteng has brought forward by a year the cut in the basic rate of income tax to 19% from April 2023

The cut has been made one year earlier than planned with 31m people getting on average £170 more per year from the new tax year from 6 April 2023.

This measure is set to cost the Exchequer £5bn a year.

At the same time, the 45% additional rate of income tax will be removed so that top earners taking home more than £150,000 will now pay 40% on earnings above £50,271.

There will be a four-year transition period for Gift Aid relief to maintain the income tax basic rate relief at 20% until April 2027. This will support almost 70,000 charities and is worth over £300m.

Nimesh Shah, CEO at Blick Rothenberg, said: ‘In a widely expected move, Rishi Sunak’s pre-announced 1% reduction to basic rate income tax was brought forward to April 2023 – someone earning £40,000 will be £563 better-off next tax year (2023/24) compared to the current year.

‘The most radical move from the new Chancellor was to abolish the 45% additional rate of tax for someone earning over £150,000, which has been in existence for just over a decade. Someone earning £200,000 will be better-off by £4,333 next tax year.’

Jamie Morrison, head of tax at accountancy firm HW Fisher said: ‘A huge decision from the Chancellor to cut the basic rate of income tax to 19% - this will impact everyone.

‘Middle class forgotten? The abolition of the 45% rate leaves in place the 60% tax rate suffered by thousands in the £100-£125,000 bracket, another threshold that has remained unchanged for many years.

‘Smart, political moves today and it is hard to see how the 45% shift benefits anyone apart from higher earners.’