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) would occur at an income of £112,950. This had the effect of creating 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 anomalous effective 60% tax band. As of 2018, the effective 60% marginal tax rate now arises for incomes between £100,000 and £123,700.
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On 22 June 2010, the new Chancellor George Osborne, as part of the coalition deal which seeks to increase the Personal Allowance to £10,000 from April 2015, made the first increase of £1,000, making it £7,475 for the 2011-12 tax year. During the 2011 Budget, the allowance was raised by £630 to £8,105 from April 2012. 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. All these increases in the personal allowance came from rises in the personal tax. 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.
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, 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
|Age under 65||Age 65-74||Age over 75|
- Wall, Emma (2010-05-21). "How does the Budget affect me? Income Tax". The Daily Telegraph. London.
- "Emergency Budget 22 June 2010". HM Revenue & Customs. Retrieved 2010-06-25.
- Cooper, Rob (2011-03-23). "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.
- Hall, James (2012-03-22). "Budget 2012: Hidden blow in raised personal tax allowance". The Daily Telegraph. London.
- Mason, Rowena (2013-03-20). "Budget 2013: Millions of workers get £100 tax cut". The Daily Telegraph. London.
- "Gordon Brown: A decade of Budgets". BBC News. 2007-03-18.
- Whitehead, Tom; Hope, Christopher (2009-01-01). "Married couples 'punished by tax system'". The Daily Telegraph. London.
- "Hague's marriage tax breaks slammed". Daily Mail. London. 2014-04-19.
- "Rates and Allowances - Income Tax". HM Revenue & Customs. Retrieved 2009-05-30.
- Collinson, Patrick (2013-03-20). "2013 & 2014 Personal Allowances". London: the guardian. Retrieved 2013-03-21.
- UK Government website: https://www.gov.uk/income-tax-rates
- Detailed list of rates paid between 1972 - 2005: http://www.taxhistory.co.uk/Income%20Tax%20Allowances.htm
- About the Personal Savings Allowance: https://www.crowdstacker.com/knowledge/why-you-need-know-about-new-personal-savings-allowance