George Osborne is predicted to hail an overall cut in taxes when he delivers his third Budget later.
The Chancellor is expected to say that lower government spending means he can put some money back in people's pockets.
The centrepiece of the package will be speeding up progress towards the coalition's promised £10,000 tax-free allowance - with the level potentially hitting £9,205 next year. But he is also set to risk controversy by announcing that the 50p top rate imposed on earnings above £150,000 will be phased out.
Mr Osborne has repeatedly insisted he will not borrow more to fund tax give-aways.
However, he is thought to have been given more wriggle room by better-than-predicted fiscal figures. Sources said much of the cost would be covered with £2 billion in surprise public spending cuts - details of which have not been disclosed.
The Chancellor is also said to be planning a stamp duty rate of 6% or 7% for homes costing more than £2 million, as well as preventing people avoiding the levy by buying property through corporate vehicles.
Although the proposals fall short of Lib Dem demands for a "mansion tax", senior figures such as Business Secretary Vince Cable are likely to claim them as a victory because they target wealth rather than income. There could also be reductions in pension tax reliefs for higher earners.
There is speculation that up to 20 million people could find themselves better off as a result of the package - although the overall reduction in taxes will be relatively small.
Lib Dem leader Nick Clegg has taken the unusual step of publicly lobbying the Chancellor to go "further and faster" on the tax-free allowance. But Tory sources insisted David Cameron and Mr Osborne were happy to agree to the significant acceleration, which will leave most taxpayers hundreds of pounds better off. The £10,000 target is now expected to be reached in April 2014 - a year earlier than planned.
Meanwhile, the top rate of income tax could potentially come down to 45p from April 2013, before disappearing at a later stage. It is understood that Mr Osborne will set out "ambitious" measures to simplify the tax system, and reassert his determination to push through planning and structural reforms despite protests.