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
editOn 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 2024–25, the effective 60% marginal tax rate now arises for incomes between £100,000 and £125,140.
History
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The trajectory of the value of the personal allowance in recent years, both in real terms and relative to earnings, is recorded by the Institute for Fiscal Studies.[1] The allowance was raised significantly between 2010 and 2020, but has more recently fallen in real terms while (projected to 2027) remaining above the 2010 level.
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 per Lib Dem policy,[2] made the first increase of £1,000, making it £7,475 for the 2011-12 tax year.[3] 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 the 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.[4][5][6] All these increases in the personal allowance came from rises in the personal tax.[6][4] In 2016, Osborne determined that the tax increases no longer applied for personal allowance and decided to cut taxes personal taxes £1,000 less than the 2011 level when he increased the personal allowance to £11,500.[7]
Married Man's allowance
editMarried 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,[8][9] 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
edit| Year | Allowance (£) | ||
|---|---|---|---|
| Age under 65 | Age 65-74 | Age over 75 | |
| 1988-89 | 2,605[10] | - | - |
| 1996–97 | 3,765 | - | - |
| 1997–98 | 4,045 | - | - |
| 1998–99 | 4,195 | - | - |
| 1999–00 | 4,335 | - | - |
| 2000–01 | 4,385 | - | - |
| 2001–02 | 4,535 | - | - |
| 2002–03 | 4,615 | - | - |
| 2003–04 | 4,615 | - | - |
| 2004–05 | 4,745 | - | - |
| 2005–06 | 4,895 | - | - |
| 2006–07 | 5,035 | - | - |
| 2007–08 | 5,225[11] | - | - |
| 2008–09 | 6,035 | - | - |
| 2009–10 | 6,475 | - | - |
| 2010–11 | 6,475 | - | - |
| 2011–12 | 7,475 | - | - |
| 2012–13 | 8,105 | - | - |
| 2013–14 | 9,440[12] | 10,500 | 10,660 |
| 2014–15 | 10,000[12] | 10,500 | 10,660 |
| 2015–16 | 10,600[13] | - | - |
| 2016–17 | 11,000[13] | - | - |
| 2017–18 | 11,500[14] | - | - |
| 2018–19 | 11,850[15] | - | - |
| 2019–21 | 12,500[16][17] | - | - |
| 2021–26 | 12,570[18] | - | - |
See also
editReferences
edit- ^ "Personal Allowance Over Time". IFS. Retrieved 27 July 2024.>
- ^ Wall, Emma (21 May 2010). "How does the Budget affect me? Income Tax". The Daily Telegraph. London.
- ^ "Emergency Budget 22 June 2010". HM Revenue & Customs. Retrieved 25 June 2010.
- ^ a b Dassanayake, Dion (20 March 2013). "Budget 2013: Personal tax allowance rise to £10,000 brought forward 12 months". Express.co.uk.
- ^ 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.
- ^ a b Mason, Rowena (20 March 2013). "Budget 2013: Millions of workers get £100 tax cut". The Daily Telegraph. London.
- ^ "Osborne: Rise in tax-free allowance". BBC News.
- ^ "Gordon Brown: A decade of Budgets". BBC News. 18 March 2007.
- ^ Whitehead, Tom; Hope, Christopher (1 January 2009). "Married couples 'punished by tax system'". The Daily Telegraph. London.
- ^ "Economy: 1988 Budget (Lawson 5) | Margaret Thatcher Foundation". www.margaretthatcher.org.
- ^ "Rates and Allowances - Income Tax". HM Revenue & Customs. Retrieved 30 May 2009.
- ^ a b Collinson, Patrick (20 March 2013). "2013 & 2014 Personal Allowances". the guardian. London. Retrieved 21 March 2013.
- ^ a b "Income Tax rates and allowances for current and past years". GOV.UK.
- ^ "Budget 2015: As it happened". BBC News. 18 March 2015.
- ^ "Summary of Budget 2017: Key points at-a-glance". 22 November 2017 – via www.bbc.co.uk.
- ^ "Budget 2020: What we already know about our changing finances". BBC News. 6 March 2020. Retrieved 20 March 2020.
- ^ "At-a-glance summary: Budget key points". BBC News. 29 October 2018. Retrieved 29 October 2018.
- ^ "Rates and thresholds for employers 2021 to 2022". 2 February 2021. Retrieved 3 February 2021.
External links
edit- UK Government website: Income Tax rates and Personal Allowances
- Detailed list of rates paid between 1972 - 2005: Tax History- UK Historic Personal Tax Regime
- About the Personal Savings Allowance: Why you need to know about new Personal Savings Allowance