Speaking in the House of Commons on Wednesday 3 March, the chancellor said the tax-free personal allowance will be frozen until 2026.
Your personal allowance means some of the money you earn is tax free.
So, what is the current personal allowance amount, how much will it rise by this year - and what does the freeze mean for you?
Here is everything you need to know.
What is the personal allowance?
You pay income tax on the money that you earn, but only over a certain amount.
The personal allowance is the amount you are able to earn before paying any tax.
Set by the government, the amount can change from year to year.
In the current 2020/21 tax year, which runs from 6 April 2020 to 5 April 2021, that amount is £12,500.
Anyone who earns over £100,000 a year does not get a tax-free personal allowance, meaning they pay income tax on everything they earn.
And if you earn £12,500 or less, you pay no income tax.
You start to pay tax on anything that you earn over your personal allowance.
Until 5 April 2021, the rates are:
On earnings of £12,501 and up to £50,000, you pay tax at a rate of 20%
On earnings of £50,001 and up to £150,000 you pay tax of 40%
On earnings over £150,000 you pay tax of 45%.
What will the personal allowance rise by in April?
In April 2021, the personal allowance will rise by £70 to £12,570.
It will then remain the same until April 2026.
That applies to all four nations - England, Scotland, Wales and Northern Ireland.
The rise means basic-rate taxpayers could earn an extra £14 a year.
The threshold for higher-rate taxpayers will also increase in April 2021 by £270, from £50,000 to £50,270.
It will also remain there until April 2026.
The Low Incomes Tax Reforms Group (LITRG) has calculated that higher-rate taxpayers will therefore receive a maximum pay boost of £68 a year.
Meanwhile, the additional-rate tax threshold won’t change from £150,000 and will remain the same until April 2026.
What does the personal allowance freeze mean?
While Rishi Sunak did not technically raise taxes during his Budget 2021, his decision to freeze thresholds will impact workers.
It means many who get a wage rise, even if it’s only in line with inflation, will result in paying more in income tax because they’re pulled into a higher tax bracket.
This is known as “fiscal drag”.
For example, some people who don’t pay tax at the moment will start paying 20 per cent on a portion of their income, whereas some paying 20 per cent will start paying 40 per cent.
If thresholds had not been frozen and had continued to rise in line with inflation, these people would have stayed in the same tax bracket.
How do I check my tax-free personal allowance?
Your tax-free personal allowance is easy to check by finding your tax code.
This is located on your payslip.
If the letter L is in your tax code, you are entitled to the standard tax-free personal allowance.
The letter M signals that you have transferred some of your personal allowance to your partner using the marriage allowance.
The letter N tells you that you have received some of your partner’s tax-free personal allowance.
You can check how much income tax you should be paying using Money Saving Expert’s calculator.