George Osborne raised the income tax threshold to £7,475 from £6,475 pounds in his emergency Budget yesterday.
He also lowered the threshold for the 40 per cent rate of income tax by £1,500 from £43,875 to £42,375 from next April.
The move means 880,000 low income earners will escape income tax altogether and a further 23m workers will save £200 a year.
However, it also means an estimated 700,000 people will now be bumped up to the 40 per cent mark for the first time. These high earners will find themselves worse off by around £100 a year.
And this could get worse as Osborne said he will freeze the level for three years.
Osborne said in his Budget statement he wanted hard working people to be able to keep a bigger slice of their gross pay.
He said: “People will be able to earn £7,475 before they have to start paying income tax and 23m people who are basic rate taxpayers will each gain by up to £170 a year. This means 880,000 of the lowest income taxpayers will be taken out of tax altogether.”
Income tax rates in the UK are currently 20, 40 and 50 per cent.