This announcement follows an increase of £9,440 to £10,000 that had already been planned for April.
The minimum tax threshold rise should save the average UK worker £800 a year in less tax, Osborne said.
The Government will mostly absorb the cost for this tax break, with the chancellor reluctant to pass on too many costs to employers in his penultimate budget before a 2015 general election.
Paul Johnson, director of the Institute for Fiscal Studies, warned that the money for this cut will have to be taken from other areas.
"To make tax cuts the chancellor's going to be taking that back with his other hand, tax increases elsewhere or even deeper spending cuts," he said.
Chris Smith, CEO of Opinio Group, who help young people get into work, said: "The fall in unemployment and the rise in employment to over 30 million was great timing for the chancellor as he delivered his Budget this afternoon.
"I’m particularly pleased that the personal allowance has been raised. This, in conjunction with the recent rise in the national minimum wage, makes it more beneficial for people to find a job rather than being a burden on the 'welfare state' by sitting around."
A increase in welfare cap was also announced in the budget. It will be £119 billion in 2015-16 and £127 in 2018-19.
