The Liberal Democrats have announced plans to change the UK income tax system, including increasing the personal tax-free allowance and raising the thresholds for the higher income tax rates. The proposals would alter the points at which taxpayers move into the 20%, 40% and 45% tax bands if the party forms the next government.
The plans have been presented by party leader Ed Davey as part of a wider income tax reduction programme. According to the Liberal Democrats, the measures would reduce the number of people paying income tax and change the income levels at which some workers begin paying higher rates.
Proposed Changes to Personal Allowance and Tax Thresholds
The current UK income tax system provides a standard Personal Allowance of £12,570, meaning individuals do not pay income tax on income up to that amount. According to HM Revenue and Customs (HMRC), the current tax bands for people with the standard allowance are 20% on income from £12,571 to £50,270, 40% on income from £50,271 to £125,140, and 45% on income above £125,140.
The Liberal Democrats have proposed increasing the tax-free personal allowance to £15,000. The party said this would remove 2.5 million people from paying income tax altogether.
The proposal would also raise the point at which the 40% higher rate begins. The threshold would increase from the current level of £50,271 to £56,000, according to the party’s announcement. The Liberal Democrats said this change would take 750,000 people out of paying the higher rate.
According to Birmingham Mail, the party has also proposed increasing the threshold for the 45% additional rate. The current rate applies to income above £125,140, while the proposed threshold would be £130,000. The Liberal Democrats said the change would affect about 1.23 million people.
Party Says Tax Cuts Would Be Funded Through Growth Measures
The Liberal Democrats have linked the income tax proposals to their wider economic plans. The party said the measures would provide most people with a £680 tax cut by increasing the personal allowance and the National Insurance threshold to £15,000.
In a statement reported alongside the proposals, the party argued that previous tax rises had increased pressure on households and said income tax reductions were needed to address the cost-of-living situation. According to the Liberal Democrats, the estimated cost of the package would be covered through proceeds from economic growth linked to changes in trade policy.
The current income tax arrangements remain those published by HMRC for the 2026 to 2027 tax year. HMRC states that the amount of income tax paid depends on how much income is above the Personal Allowance and which tax band that income falls into. The proposed changes would require legislation and would only take effect if implemented by a future government. The existing tax rates and thresholds continue to apply until any changes are introduced through the normal parliamentary process.
