More than 130,000 people will escape the higher rate of tax, as it rises in line with inflation for the first time in five years.
The higher rate threshold – where taxpayers pay a 40 per cent rate – will jump from £41,865 to £42,385 next year, George Osborne announced in the Autumn Statement.
The £100 rise to the personal allowance was also passed on in full to higher rate tax payers.
Mr Osborne said the increase to the higher tax rate threshold was a “down-payment” on the government’s promise to raise it to £50,000 by the end of the decade.
The Chancellor also revealed an increase in the personal allowance – the amount of money that can be earned tax-free every year – to £10,600 from next April, £100 more than the £10,500 expected.
It has also been announced that business who employ apprentices under the age of 25 will no longer have to pay national insurance contributions for them.
Among the other measure announced was an extension of the £2,000 Employment Allowance to carers, freezing Universal Credit work allowances for another year and cutting tax credits when overpayments are certain.