The point at which people start paying income tax will be increased to £9,205 from April next year, George Osborne announced in today's Budget.
The Chancellor told the House of Commons he wanted "the lowest paid to be lifted out of tax altogether."
"Our central goal is to support working families," he said.
The measure, which raises the amount of tax-free salary from the current basic rate of £7,475, is expected to cost the Exchequer between £2bn to £3bn over the next fiscal year.
It is the biggest tax cut announced in the Budget.
It also will mean that around two million low-income workers will no longer pay tax.
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