New legislation, which was announced as part of the Queen’s Speech, means that any future rise in the personal income tax allowance will be linked to rises in the national minimum wage.
The Government’s announcement means that the amount workers will be able to earn before they have to pay any tax is likely to rise faster than inflation.
Currently, the personal allowance is £10,600; however, this is due to rise to £12,500 by 2020.
Similarly, the national minimum wage for adults is set to be increased by three per cent in October 2015, which will be the largest actual real term rise for seven years.
Furthermore, Chancellor George Osborne has made it clear that the minimum wage will be increased again to £8 by 2020.
This means that the Government is essentially ensuring that anyone who works 30 hours per week on the national minimum wage will not be required to pay tax.
Under current tax rules, an adult working for 48 weeks per year at the same rate and on minimum wage earns £9,360, which is below the tax threshold.
However, the new law will make it less likely that such workers will be required to pay tax when the national minimum wage rises at a faster rate than inflation, which is currently 0.1 per cent.
The increases are also expected to have an impact on the higher rate tax threshold and ultimately benefit workers who currently earn over £42,385 per year.