Understanding your Personal Allowance can be challenging but it is crucial to having a handle on your finances and an understanding of your tax bill.
What is the Personal Allowance?
If you’re a UK resident, the Personal Allowance is which is the amount of income you do not have to pay tax on.
The current standard Personal Allowance is £12,570, which is the amount that most taxpayers aged 16 and over are entitled to receive.
However, if your taxable income exceeds £100,000 your personal allowance will be reduced by £1 for every £2 earned over the £100,000 limit.
This means that if you earn more than £125,140 you are not entitled to any personal allowance and will pay tax on all your income.
Personal Allowance and Income Tax
The rate of Income Tax you pay will depend on your income above the Personal Allowance:
· If you earn £12,571 to £50,270, you will pay the basic rate of 20 per cent.
· If you earn £50,271 to £150,000, you will pay the higher rate of 40 per cent.
· If you earn over £150,000, you will pay the additional rate of 45 per cent.
Be aware that the threshold for the additional rate of Income Tax will fall from £150,000 to £125,140 from April this year.
Can the Personal Allowance be increased?
If you are married or in a civil partnership, your Personal Allowance can be increased as you are able to transfer up to £1,260 of your Personal Allowance to your partner.
This is over the 10 per cent of the basic £12,570 and is known as the Marriage Allowance.
If you need advice on the Personal Allowance or other related matters, contact us today.
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