Investments & Taxation
Last Updated: 6 Apr 24 10 min read
1. Key Points
2. What is the personal allowance?
5. Claiming the personal allowance
The personal allowance is the level above which income tax is levied on an individual's annual income. The personal allowance and blind person's allowance are deducted from net income to save tax at the highest rate.
For those taxed under Pay As You Earn (PAYE), generally the benefit of the personal allowance is spread throughout the year. For a self-employed person, the personal allowance is taken into account through their self-assessment tax return when the tax bill for the year is worked out.
Note that the Scottish Parliament has the power to set the Scottish rate of income tax (SRIT) which applies to non-savings and non-dividend income. This comprises earnings, pensions, taxable social security payments, trading profits and income from property. The personal allowance and thresholds on taxes on savings and dividends remain a UK ‘reserved’ matter. From April 2019, the Welsh Government also has the power to set income tax rates applicable to non-savings and non-dividend income to those defined as Welsh taxpayers. Again, reliefs and allowances, such as Personal Allowance, are not devolved and remain set by the UK government.
Find out more about the dividend allowance and personal savings allowance in our article Individual rates and order of taxation.
Married couples and civil partners can apply to transfer 10% of the income tax personal allowance from one to the other. The term marriage ‘allowance’ is inaccurate as it is a transfer rather than an additional allowance.
To qualify, neither of the partners can be a higher rate taxpayer and they must not be claiming the married couple’s allowance.
An application for marriage allowance will result in a reduced personal allowance for the transferor. Note however that the recipient will receive a tax reduction rather than an increased personal allowance. When calculating an individual’s income tax liability, S23 ITA 2007 sets out seven steps in the tax calculation. In Step 3, the personal allowance is deducted. For the avoidance of doubt therefore, the recipient’s Step 3 allowance is not adjusted but instead the adjustment comes in at Step 6 where any tax ‘reducers’ are deducted from the tax liability.
Couples will be entitled to the full benefit in their first year of marriage. Both individuals must be born on or after 6 April 1935.
For those couples where one person does not use all of their personal allowance at the moment the benefit will be up to £252. That figure is derived from the personal allowance of £12,570 x 10% x 20% = £252.
Entitlement to the personal allowance and blind person's allowance is dealt with in Income Tax Act 2007, Part 3 Chapter 2. Tax reductions for married couples and civil partners are dealt with under Chapter 3.
Chapter 4 then states that the above allowances or tax reduction may be claimed for a tax year where the individual is resident for the tax year.
Even if an individual is not resident in the UK they may be able to claim personal allowances if they meet certain criteria. Please see here.
UK resident but non-UK domiciled individuals who claim the 'remittance' basis for a tax year are not entitled to the personal allowance or blind person's allowance (S809G ITA 2007). See below comments however for dual residents.
It is very important to note the Spring Budget 2024 announcement that the government considers the concept of domicile is outdated and incentivises individuals to keep income and gains offshore. The government is therefore modernising the tax system by ending the current rules for non doms from April 2025. The government is introducing a new residence based regime taking effect from April 2025. We will update this article as appropriate in due course.
If an individual is 'dual resident' in the UK and in one of certain other listed countries, then he/she will be able to receive UK personal allowances in any tax year the remittance basis is claimed. (For more information, see the Residence, Domicile and Remittance Basis Manual page on the HMRC website.
At Budget 2014, the government launched a consultation on whether or not to restrict the income tax personal allowance for non-residents. Although the government is keen, it recognises the complexity for both employers and individuals who may be affected. Accordingly, the government announced in Autumn Statement 2014 that it will continue to discuss implementation of this change with stakeholders. Should the government decide to proceed, a more detailed consultation will be undertaken.
If an individual already pays tax through their job or pension, or completes a Self Assessment tax return, then a personal allowance will be received automatically. In order to get the age-related personal allowance, the form Income Tax: age-related Personal Allowance (P161) pension coding needs to be completed.
2023/24 |
2024/25 |
|
|---|---|---|
|
£ |
£ |
Personal allowance |
12,570 |
12,570 |
Income limit for personal allowances |
100,000 |
100,000 |
Income limit for married couple's allowance |
34,600 |
37,000 |
Married couple's allowance where either party born before 6 April 1935 |
10,375 |
11,080 |
Minimum amount of married couple's allowance |
4,010 |
4,280 |
Blind person's allowance |
2,870 |
3,070 |
| The income limits above of £100,000 and £34,600 are based on 'adjusted net income' which is calculated in S58 ITA 2007 as follows. This ignores the complexities arising from basis period reform. See here. |
Step 1
|
The personal allowance is reduced by half of the amount - £1 for every £2 - over the £100,000 limit. If income is large enough, the personal allowance will be reduced to nil. In practice, an individual's tax code will take account of the reduction based on an estimate of income. HMRC will work out the actual entitlement to Personal Allowance (if any) when the tax return is sent in.
Where adjusted net income exceeds £100,000
|
Up to & including 2027/28 |
£ |
£ |
Difference £ |
|---|---|---|---|
Adjusted net income |
125,140 |
100,000 |
25,140 |
Personal allowance |
Nil |
(12,570) |
|
Taxable |
125,140 |
87,430 |
|
£37,700 @20% |
7,540 |
7,540 |
|
£37,700 to £125,140 @40% |
34,976 |
||
£37,700 to £87,430 @40% |
19,892 |
||
Total Tax |
42,516 |
27,432 |
15,084 |
| £15,084 / £25,140 = 60%. | |||
The allowance is only available to those married and living together for the whole or part of the tax year with at least one spouse born before 6 April 1935.
For 2024/25 the maximum amount of married couple's allowance is £11,080 and the minimum amount is £4,280. A claimant however only receives 10% of the allowance amount. The actual tax saving (based on a full year's eligibility) is therefore at least £428 and up to £1,108.
The precise amount depends on the claimant's income. It is subject to the £37,000 income limit, and is reduced by £1 for every £2 above the limit. The allowance is never reduced below the minimum amount.
The allowance is given in full in the year of separation or death of either spouse/partner.
Marriages before 5 December 2005 - the old rule (S45 ITA 2007)If a man meets the condition that, for the whole or part of the tax year he is married and his wife is living with him, then he can claim the allowance (unless an election for the new rules to apply is in force) in which case HMRC will reduce his tax bill by 10% of the married couple's allowance to which he is entitled. The actual amount depends on the husband's income as detailed below. Marriages and civil partnerships on or after 5 December 2005 (S46 ITA 2007)If an individual meets the condition that, for the whole or part of the tax year he/she is married or in a civil partnership and is living with the spouse or civil partner then the person with the higher net income can claim the allowance and HMRC will reduce the claimant's tax bill by 10% of the married couple's allowance to which he or she is entitled. The actual amount depends on the claimant's income as detailed below. Note that these provisions also apply to a marriage before 5 December 2005 where an election for the new rules to apply is in force. The year of marriage or entry into civil partnership (S54 ITA 2007)In the year of marriage or entry into civil partnership, entitlement is reduced by one twelfth for each complete tax month (ending on the 5th) before the event. For example a marriage on 24 March 2025 would mean receipt of just one twelfth of the allowance for 2024/25. Election by individual to transfer relief (S47 ITA 2007)If an individual's spouse is entitled to a tax reduction above for a particular tax year, then the individual can elect to claim a tax reduction of 10% of half the minimum amount (ie. in 2024/25 half of £4,280 = £2,140). Joint election to transfer relief (S48 ITA 2007)If an individual's spouse is entitled to a tax reduction above for a particular tax year then the individual and the spouse or civil partner can jointly elect for the individual to claim a tax reduction of 10% of the minimum amount (i.e. in 2024/25 £4,280). To summarise therefore the 'other' spouse can claim half of the minimum allowance as of right, or the couple can jointly claim for the 'other' spouse to get the whole amount. Elections under S47 and S48 above must be made before the start of the tax year in which it is first to apply. Claims must be made on the form Income Tax: transferring the Married Couple's Allowance (18). In the year of marriage or formation of civil partnership however, the election may be made in that year. The election will then continue in force for each subsequent tax year until withdrawn. Transfer of unused relief (S51 ITA 2007)If an individual's spouse or civil partner is entitled to a tax reduction which exceeds their tax liability then the individual may claim a tax reduction equal to the unused part providing that the spouse or civil partner notifies HMRC. The form Income Tax: notice of transfer of surplus Income Tax allowances (575(T)) should be used to transfer unused relief. In other words, if an individual's tax liability is too low to utilise the allowance, then the individual can transfer the surplus to their spouse or civil partner. |
Under S38 ITA 2007, an individual can claim blind person's allowance for a tax year if he/she meets either of the following conditions for the whole or part of the tax year
There are no age or income restrictions. If both spouses or civil partners qualify for blind person's allowance then each is entitled.
Consider Sally who is 58 and registered blind with her local authority in England. She has:
She will only be subject to tax on £760 (£16,400 less the sum of £12,570 and £3,070).
If a blind person's tax bill isn't high enough to fully use the blind person's allowance then it is possible to transfer any unused allowance to a spouse or civil partner. As above completion of form 575 will achieve this.
Submit your details and your question and one of your Account Managers will be in touch.
