Definition§
Personal Allowance: The personal allowance is the amount of income an individual resident in the UK can earn each year before they start paying income tax. For the tax year 2016-17, the personal allowance was set at £11,000. Historically, there were additional allowances for individuals aged over 65 or over 75. However, these age-related allowances were frozen in 2013 and completely phased out by April 2016, simplifying the personal allowance structure.
Examples§
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Example 1: If an individual earns £15,000 per year, the first £11,000 would be tax-free due to the personal allowance, leaving £4,000 subject to income tax.
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Example 2: An individual with an annual income of £8,000 would not pay any income tax since the income is below the personal allowance of £11,000 for the 2016-17 tax year.
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Example 3: For a higher-income earner with an annual income of £50,000, the first £11,000 would be tax-free while the remaining £39,000 would be liable for taxation under the applicable tax rates.
Frequently Asked Questions§
What is the personal allowance rate for the current tax year?§
The personal allowance rate is subject to change annually. For the latest rate, you should consult the latest HMRC guidelines or official UK government tax resources.
Did the personal allowance rates change effective April 2016?§
Yes, from April 2016, the additional age-related personal allowances were removed. The standard personal allowance applied broadly regardless of age.
Are there any circumstances where the personal allowance might be reduced?§
Yes, if an individual’s income exceeds a certain threshold, the personal allowance may be reduced. Typically, personal allowances begin to taper off for those with an income over £100,000.
Does every UK resident automatically receive the personal allowance?§
Yes, every individual resident in the UK is entitled to the personal allowance unless their income exceeds certain levels where it starts to reduce.
What happens if my income is below the personal allowance?§
If your income is below the personal allowance, you will not have any taxable income and therefore you won’t pay any income tax.
Related Terms§
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Taxable Income: The portion of your income that is subject to income tax after personal allowances and other deductions have been considered.
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Income Tax: A tax that governments impose on income generated by businesses and individuals within their jurisdiction.
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Income Tax Allowances: Various allowances that individuals can claim to reduce the amount of income subject to tax, including personal allowances.
Online Resources§
Suggested Books for Further Studies§
- Tolley’s Income Tax by David Smailes - A comprehensive guide to UK income tax laws and applications.
- Taxation: Policy and Practice by Andy Lymer and Lynne Oats - An insightful book covering various aspects of UK taxation including personal allowances.
- Core Tax Annuals: Income Tax 2016/17 by Mark McLaughlin, Iris Wünschmann-Lyall - Annual publication offering detailed updates on income tax policies and allowances.
