1. What is a personal allowance?
Most people in the UK, be they business owners, employees, or self-employed, are required to a pay a tax on their earnings known as Income Tax. However, you only begin to pay Income Tax when your annual income exceeds a certain threshold. This threshold is known as Standard Personal Allowance.
2. Who is entitled to a personal allowance?
Anyone who has resided in the UK for at least half a tax year, regardless of their nationality, is entitled to a personal allowance. The current tax year in the UK runs from 6 April 2018 to 5 April 2019. If you are not a UK resident, but an EEA national or a British Citizen, you are still entitled to claim a UK personal allowance.
3. What is the personal tax allowance in the UK?
Standard personal allowance in the UK changes from one tax year to another. Currently, it is £11,850. This means that the first £11,850 of your annual gross salary is tax-free. Thus, if you earn, say, £25,000, you only have to pay tax on £13,150. The standard personal allowance is expected to rise to £12,500 by the 2020/2021 tax year.
4. Can I have my personal allowance increased?
There are several ways in which you can maximise your personal tax allowance.
- Marriage Tax Allowance allows married couples and civil partners to transfer a proportion (currently 10%) of their personal allowance between them. This applies if one of the partners earns less than £11,850 and therefore does not pay Income Tax. They can then transfer their unused personal allowance to their partner, increasing his or her overall share of tax-free earnings. For example, if you earn £9,000 pa, you have £2,850 of unused personal allowance which you can transfer to your partner so that his / her personal allowance increases from £11,850 to £13,035.
- Personal Savings Allowancegives basic 20% rate tax payers up to £1,000 of income from savings tax-free (the equivalent amount is £500 for higher rate taxpayers).
- Dividend Allowance is available to anyone who has dividend income – no matter what type – and makes the first £5,000 of your dividend income tax-free.
5. Can I lose my personal allowance?
Yes. You start losing your personal allowance when your total income exceeds £100,000. Every £2 earned above this threshold will reduce your personal allowance by £1. This means that if you earn more than £123,000, you will not have any personal allowance at all.
If you are unsure about your eligibility for UK personal allowance, would like to apply for marriage allowance, or have any other questions about UK tax system, how it works, and what taxes you are required to pay, feel free to contact our team. Our professional accounting and tax advisers will be happy to assist, making sure that you are clear about your tax position, meet all requirements, and do not overpay tax.