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Income Tax and Personal Allowance

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. 
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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

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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.