New income tax update on calls to increase Personal Allowance to £20,000 due next week

Daily Record

06-05-2025

More than 248,400 people have signed an online petition calling for an increase to the £12,570 Personal Allowance.
Income tax rises for Scots in April - how the changes affect you
An online petition calling for the personal tax allowance to rise from £12,570 to £20,000 to help people on a low income 'get off benefits and allow pensioners a decent income' is to be debated by MPs in Parliament next week after more than 248,400 people across the UK showed support for the proposal.
However, a new update from the UK Government, related to the potential impact of increasing the Personal Allowance to £20,000, looks set to dash any hopes people may have of seeing the income threshold freeze lifted before the planned rise with inflation in April 2028.
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In a written response to Labour MP Tanmanjeet Singh Dhesi, Treasury Minister James Murray said that the UK Government 'has no plans to increase the Personal Allowance to £20,000'.
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Mr Murray said: 'The Government is committed to keeping taxes for working people as low as possible while ensuring fiscal responsibility and so, at our first Budget, we decided not to extend the freeze on personal tax thresholds.
'The Government has no plans to increase the Personal Allowance to £20,000.'
He went on to explain how increasing the Personal Allowance to £20,000 would 'come at a significant fiscal cost of many billions of pounds per annum' adding that this would 'reduce tax receipts substantially, decreasing funds available for the UK's hospitals, schools, and other essential public services that we all rely on'.
The Treasury Minister continued: 'It would also undermine the work the Chancellor has done to restore fiscal responsibility and economic stability, which are critical to getting our economy growing and keeping taxes, inflation, and mortgages as low as possible.
'The Government keeps all taxes under review as part of the policy making process. The Chancellor will announce any changes to the tax system at fiscal events in the usual way.'
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The debate in Westminster Hall on Monday, May 12 will allow MPs to argue on behalf of their constituents for an increase to the Personal Allowance. The debate will conclude with a Treasury Minister responding to the proposal, giving the UK Government's reasons for maintaining the freeze until the end of the 2027/28 financil year.
Online petition
Petition creator Alan David Frost argues it is 'abhorrent to tax pensioners on their State Pension when it is over the personal allowance' threshold and says the increase would 'inject more cash into the economy'.
The 'raise the income tax personal allowance from £12570 to £20000' petition states: 'We think this would help low earners to get off benefits and allow pensioners a decent income.
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'We think it is abhorrent to tax pensioners on their State Pension when it is over the personal allowance. We also think raising the personal allowance would lift many low earners out of benefits and inject more cash into the economy creating growth.'
Responding to the proposals in the petition on February 20, the Treasury gave a similar response to Mr Murray. The Department said: "The Government is committed to keeping taxes for working people as low as possible while ensuring fiscal responsibility and so, at our first Budget, we decided not to extend the freeze on personal tax thresholds."
It also went on to say that the UK Government has no plans to increase the Personal Allowance to £20,000.
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State Pension payments 2025/26
Weekly State Pension payments increased on April 7, however, people will not see an immediate increase as the contributory benefit is paid in arrears.
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Full New State Pension
Weekly payment: £230.25
Four-weekly payment: £921
Annual amount: £11,973
Full Basic State Pension
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Weekly payment: £176.45
Four-weekly payment: £705.80
Annual amount: £9,175
To check your own future State Pension payments, use the online forecasting tool on GOV.UK here.
State Pension and tax
The most important thing to be aware of is that someone on the full New State Pension will not pay income tax, but older people with additional income through employment, private or workplace pensions, might need to pay tax.
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For most people, this would be paid automatically through PAYE on employment and tax on private pensions. Anyone who doesn't pay tax automatically pays tax through deductions, would receive a tax bill from HMRC the following summer to be paid by January in the next year.
There has been a fair bit of speculation on the number of pensioners who will pay tax before the Personal Allowance freeze ends, but currently of the 13 million State Pensioners across the UK, some 8.51 (65%) already pay some tax in retirement, so this isn't something new.
And with auto-enrolment in the workplace - now in its 13th year - more people will benefit from increased income in retirement and will probably pay tax - which will typically be deducted from their private pension.
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It's important to understand any tax to be paid in retirement is based on the amount of income earned above the threshold - not the total additional income. For example, if someone has a total annual income of £13,000, they will pay tax on £430 - which is the amount above the £12,570 threshold.
Those affected would then have to pay HMRC 19 per cent of their income above the threshold, which is the starter rate of tax in Scotland (20% in England).