Personal allowance

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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[edit]

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. This had the effect of creating an anomalous effective 50% 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 50% tax band. As of 2019-20, the effective 50% marginal tax rate now arises for incomes between £100,000 and £125,000.

History[edit]

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.[3] 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.[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 that the 2011 level when he increased the personal allowance to £11,500.[7]

Married Man's allowance[edit]

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,[8][9][10] 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[11] - -
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[12] - -
2008–09 6,035 - -
2009–10 6,475 - -
2010–11 6,475 - -
2011–12 7,475 - -
2012–13 8,105 - -
2013–14 9,440[13] 10,500 10,660
2014–15 10,000[13] 10,500 10,660
2015–16 10,600[14] - -
2016–17 11,000[15] - -
2017–18 11,500[16] - -
2018–19 11,850[17] - -
2019–20 12,500[18] - -

References[edit]

  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. ^ Cooper, Rob (23 March 2011). "Osborne: 'I'm the man with a plan'... Chancellor's Budget cuts fuel duty, reduces income tax and slashes red tape and business costs". Daily Mail. London.
  4. ^ a b http://www.express.co.uk/news/uk/385688/Budget-2013-Personal-tax-allowance-rise-to-10-000-brought-forward-12-months
  5. ^ Hall, James (22 March 2012). "Budget 2012: Hidden blow in raised personal tax allowance". The Daily Telegraph. London.
  6. ^ a b Mason, Rowena (20 March 2013). "Budget 2013: Millions of workers get £100 tax cut". The Daily Telegraph. London.
  7. ^ https://www.bbc.com/news/av/uk-politics-35824471/budget-2016-new-personal-tax-free-allowance-of-11500
  8. ^ "Gordon Brown: A decade of Budgets". BBC News. 18 March 2007.
  9. ^ Whitehead, Tom; Hope, Christopher (1 January 2009). "Married couples 'punished by tax system'". The Daily Telegraph. London.
  10. ^ "Hague's marriage tax breaks slammed". Daily Mail. London. 19 April 2014.
  11. ^ http://www.margaretthatcher.org/document/111449
  12. ^ "Rates and Allowances - Income Tax". HM Revenue & Customs. Retrieved 30 May 2009.
  13. ^ a b Collinson, Patrick (20 March 2013). "2013 & 2014 Personal Allowances". London: the guardian. Retrieved 21 March 2013.
  14. ^ https://www.gov.uk/government/publications/rates-and-allowances-income-tax/income-tax-rates-and-allowances-current-and-past
  15. ^ https://www.gov.uk/government/publications/rates-and-allowances-income-tax/income-tax-rates-and-allowances-current-and-past
  16. ^ https://www.bbc.co.uk/news/live/business-31874987
  17. ^ https://www.bbc.co.uk/news/uk-politics-42056452
  18. ^ "At-a-glance summary: Budget key points". BBC News. 29 October 2018. Retrieved 29 October 2018.

Notes[edit]