Welsh income tax takes effect

5 Apr 19

New powers enabling the Welsh Government to set the rates of income tax payable by people in the region have come into effect.

The move enables Welsh ministers to adjust income tax by 10p in every £1 for each tax band, which could mean significantly different tax bills to the rest of the UK.

However, income tax rates will stay the same this financial year and ministers have indicated that they are unlikely to change them before elections for the Welsh Assembly in 2021.

Under the new arrangements, income tax from Welsh taxpayers will continue to be collected by HMRC and the personal allowance – the amount people can earn before they start paying tax – will be the same as in the rest of the UK.

From now on, however, the UK government will reduce the three rates of income tax paid by Welsh taxpayers – lowering the basic rate from 20% to 10%, the higher rate from 40% to 30%, and the additional rate from 45% to 35%.

The Welsh government will then decide the distinct Welsh rates of income tax to be added to the reduced UK rates.

A Welsh Treasury will get this 10p in each band to spend directly on public services in the region, meaning that this money will, for the first time, stay in the region and will not go directly to the UK Treasury.

This could mean that up to £5bn of devolved and local tax revenue now raised in Wales will stay in the principality.

Analysts believe the move could help to make the Welsh Assembly more accountable for its spending policies, by linking the amounts it raises through its proportion of tax to the decisions that it takes.

There has been discussion about whether a 1p in the pound tax increase on the basic rate – potentially raising about £200m – should be allocated to social care in Wales.

In another boost for the region, a deal agreed with the UK Treasury means that Welsh ministers will now also be able to borrow £1bn - twice as much as before - to fund building and infrastructure projects.

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