In the UK, the vast majority of taxpayers are allowed to earn a certain sum of money before they have to pay tax. Nearly everyone in the UK is entitled to an income tax ‘Personal Allowance’ whilst other tax allowances apply in certain cases.
Our guide looks at how much you can earn without paying tax, and how this is represented in your tax code.
Your Personal Allowance
Most people in the UK are entitled to an income tax ‘Personal Allowance’. This is the amount of money you can earn before you start paying any tax.
In the tax year 2011/12 the standard Personal Allowance is £7,475. This means that if you earn less than £7,475 in the tax year 2011/12 you probably won’t pay any income tax. If you earn over £7,475, you will generally only pay tax on your earnings above this amount.
Remember that income includes earnings from all sources, including employment, pensions, property and savings income.
Age related allowances
If you are aged between 65 and 74, your Personal Allowance will be slightly higher. In the 2011/12 tax year, the allowance is £9,940. If you are over 75, your Personal Allowance rises again – to £10,090 (in the 2011/12 tax year.)
If you’re over 65 and your income is over £24,000 then your Personal Allowance will be reduced. Your age-related Personal Allowance is reduced by half of the amount – £1 for every £2 – you earn over the £24,000 limit, until the basic allowance is reached.
Other common tax allowances
Married Couple’s Allowance – available to civil partners
You can claim Married Couple’s Allowance if you or your spouse/civil partner were born before 6 April 1935 and you’re married or in a civil partnership. You also have to be a taxpayer, although you can transfer this allowance to your spouse/civil partner.
Blind Person’s Allowance
If you are on a local authority register of blind persons and you’re certified blind you can claim Blind Person’s Allowance. If you have no taxable income or your income is less than the allowance it is often worth claiming as you can transfer the unused part of the allowance to your spouse/civil partner.
Getting your Personal Allowance
If you complete a Self Assessment tax return or if you have tax deducted from wages or pensions through the Pay as you Earn (PAYE) system then you should receive your Personal Allowance automatically.
If you pay tax through the PAYE system, your Personal Allowance will ordinarily form part of your tax code. The standard tax code for the 2011/12 tax year is 747L which assumes that you are receiving your Personal Allowance and no other tax allowances. If you do receive other tax allowances then your tax code will be different to take these into account.