Why people are angry about the personal tax allowance threshold

Yahoo

12-05-2025

The personal tax allowance threshold will be under question in Parliament this afternoon after complaints have been made that it is far too low.
This afternoon, MPs will debate a gov.uk petition on the issue, which has been signed by 250,000 people to date, calling for the threshold to be raised from £12,570 to £20,000.
Here's what you need to know about the current threshold, when and why it was set, and what the government has said about raising the threshold in the future.
The standard personal allowance for income tax is £12,570.
In short, this is the amount of income you can earn before you have to pay tax. The threshold was frozen by the previous Conservative government in 2021, with a freeze in place until 2028.
Some of the main taxable earnings that will count towards the income threshold include:
Private or workplace pensions: Any income from private or occupational pensions is taxable and added to your total income threshold for the year.
Employment income: Any wages earned from a job while you claim your pension are taxable. You are still allowed to work and claim your state pension.
Self-employment profits: Income earned through self-employment or freelance work is taxable.
Rental income: Earnings from renting out property or land are taxable, although you can claim a £1,000 property allowance for small amounts.
Savings interest: Interest earned on savings above the personal savings allowance (£1,000 for basic-rate taxpayers or £500 for higher-rate taxpayers) is taxable.
The tax threshold freeze has come under fire because it not only means more working people have to pay more tax, but it also means a lot of pensioners will too.
Since freezing thresholds raises overall tax revenue without tax rates actually increasing, the policy has also been branded a 'stealth tax' by critics.
Currently, 2.6 million people already receive a state pension above the personal allowance limit, The Telegraph reports.
Now, the 4.1% rise will drag 650,000 more across the threshold in 2025-26.
The gov.org petition has a specific ask: to raise the income tax personal allowance from £12,570 to £20,000.
The petition reads: "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."
As the gov.org petition has been signed by 100,000 people, it has to be debated in Parliament.
Campaign groups like Silver Voices have also urged the government to rethink the threshold freeze, arguing that the threshold is low relative to inflation and rising incomes, and unfairly affects pensioners, who have paid tax on their income already.
Another petition by the group demanded the government lowered the threshold. The petition, hosted on change.org, has accrued 124,000 signatures.
The petition was made on behalf of a widow named Colette, aged 75, who is entitled to a proportion of her late husband's state pension as well as her own, and found for the first time this year that the combined total took her over the tax threshold by about £1000, which is now being taxed.
More details about what the government thinks about lifting the freeze will be made clear today.
But all signs point to the government sticking to its guns. In its response to the gov.uk petition, the Treasury said it will not raise to the personal allowance threshold to £20,000, and it has kept the freeze to "ensure fiscal responsibility".
A spokesperson from the Treasury 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. Increasing the Personal Allowance to £20,000 would come at a significant fiscal cost of many billions of pounds per annum.
"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. 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."