Personal allowance


In the UK tax system, personal allowance is the threshold above which income tax is levied on an individual's income. A person who receives less than their own personal allowance in taxable income (such as earnings and some benefits) in a given tax year does not pay income tax; otherwise, tax must be paid according to how much is earned above this level. Certain residents are entitled to a larger personal allowance than others. Such groups include: the over-65s (followed by a further increased allowance for over-75s), blind people, and married couples where at least one person in the marriage (or civil partnership) was born before 6 April 1935. People earning over £100,000 a year have a smaller personal allowance. For every £2 earned above £100,000, £1 of the personal allowance is lost; meaning that incomes high enough will not have a personal allowance.

Personal allowance tapering


On 22 April 2009, the then Chancellor Alistair Darling announced in the 2009 Budget statement that starting in April 2010, those with annual incomes over £100,000 would see their Personal allowance reduced by £1 for every £2 earned over £100,000, until the Personal allowance was reduced to zero, which (in 2010-11) would occur at an income of £112,950.

For every additional £100 earned, the Personal allowance was reduced by £50, meaning that an additional £50 would be taxed at the marginal rate (40%), resulting an additional tax liability of £20, resulting in an effective additional 20% marginal taxation over and above the 40% tax already due.

This resulted in an anomalous effective 60% marginal tax rate in the income band between £100,000 and £112,950, with the marginal tax rate returning to 40% above £112,950. As the Personal allowance has grown over the years, this has resulted in a corresponding increase in the size of the effective marginal 60% tax band. As of 2021-22, the effective 60% marginal tax rate now arises for incomes between £100,000 and £125,140.

History


On 22 June 2010, the new Chancellor George Osborne, as part of the coalition deal which sought to increase the Personal Allowance to £10,000 from April 2015 as per Lib Dem policy,[1] made the first increase of £1,000, making it £7,475 for the 2011-12 tax year.[2] During the 2011 Budget, the allowance was raised by £630 to £8,105 from April 2012.[citation needed] In 2013, George Osborne revised the plans to increase the Personal Allowance and bring forward to date at which it would reach the £10,000 target. This resulted in the allowance being raised to £9,440 from April 2013, before being increased to £10,000 from April 2014, a year earlier than originally planned.[3][4][5] All these increases in the personal allowance came from rises in the personal tax.[5][3] In 2016, Osborne determined that the tax increases no longer applied for personal allowance and decided to cut taxes personal taxes £1,000 less that the 2011 level when he increased the personal allowance to £11,500.[6]

Married Man's allowance


Married Man's allowance was the allowance for a legally married couple. The allowance was given at the man's highest rate of tax. During the early-1990s, then-Chancellor of the Exchequer, Norman Lamont overhauled the allowance and introduced the 10% allowance,[clarification needed] which meant that all men had the same amount of money in their pocket,[clarification needed] irrespective of highest tax rate. The allowance was scrapped from April 2000, first being announced in then-Chancellor Gordon Brown's 1999 budget,[7][8] with the exception of people married, or in civil partnerships (introduced in 2005) where one spouse was born before 6 April 1935.

History of allowances


Year Allowance (£)
Age under 65Age 65-74Age over 75
1988-892,605[9]--
1996–973,765--
1997–984,045--
1998–994,195--
1999–004,335--
2000–014,385--
2001–024,535--
2002–034,615--
2003–044,615--
2004–054,745--
2005–064,895--
2006–075,035--
2007–085,225[10]--
2008–096,035--
2009–106,475--
2010–116,475--
2011–127,475--
2012–138,105--
2013–149,440[11]10,50010,660
2014–1510,000[11]10,50010,660
2015–1610,600[12]--
2016–1711,000[12]--
2017–1811,500[13]--
2018–1911,850[14]--
2019–2112,500[15][16]--
2021–2612,570[17]--

See also


References


  1. Wall, Emma (21 May 2010). "How does the Budget affect me? Income Tax". The Daily Telegraph. London.
  2. "Emergency Budget 22 June 2010". HM Revenue & Customs. Retrieved 25 June 2010.
  3. Dassanayake, Dion (20 March 2013). "Budget 2013: Personal tax allowance rise to £10,000 brought forward 12 months". Express.co.uk.
  4. Hall, James (22 March 2012). "Budget 2012: Hidden blow in raised personal tax allowance". The Daily Telegraph. London. Archived from the original on 23 March 2012.
  5. Mason, Rowena (20 March 2013). "Budget 2013: Millions of workers get £100 tax cut". The Daily Telegraph. London.
  6. "Osborne: Rise in tax-free allowance" via www.bbc.com.
  7. "Gordon Brown: A decade of Budgets". BBC News. 18 March 2007.
  8. Whitehead, Tom; Hope, Christopher (1 January 2009). "Married couples 'punished by tax system'". The Daily Telegraph. London.
  9. "Economy: 1988 Budget (Lawson 5) | Margaret Thatcher Foundation". www.margaretthatcher.org.
  10. "Rates and Allowances - Income Tax". HM Revenue & Customs. Retrieved 30 May 2009.
  11. Collinson, Patrick (20 March 2013). "2013 & 2014 Personal Allowances". London: the guardian. Retrieved 21 March 2013.
  12. "Income Tax rates and allowances for current and past years". GOV.UK.
  13. "Budget 2015: As it happened". BBC News.
  14. "Summary of Budget 2017: Key points at-a-glance". 22 November 2017 via www.bbc.co.uk.
  15. "Budget 2020: What we already know about our changing finances". BBC News. 6 March 2020. Retrieved 20 March 2020.
  16. "At-a-glance summary: Budget key points". BBC News. 29 October 2018. Retrieved 29 October 2018.
  17. "Rates and thresholds for employers 2021 to 2022". 2 February 2021. Retrieved 3 February 2021.