PLEASE NOTE: The charity TaxAid advises only those people on low incomes whose problems cannot be resolved with HMRC.

Your personal allowance

Income Tax

The amount of tax free income you can have in a year is called your personal allowance. It depends on your age; and can be affected by the level of your income. For couples one of whom is born before 6 April 1935 there is a Married Couple’s Allowance. Blind people can get an additional allowance called the Blind Person’s Allowance. We will see how this works by looking at the allowances individually.

  • The Personal Allowance
  • Age Allowance
  • How the Age Allowance works
  • Blind Person’s Allowance
  • Married Couple’s Allowance
  • The ‘Marriage Allowance’

The Personal Allowance

Each tax year there is a basic amount of income that is tax-free. The amount of this ‘personal allowance’ is set for each tax year. For the tax year 2016-17 the basic personal allowance is £11,000 (2015-16 £10,600).

People with income above £100,000 will have their personal allowance reduced – if their income is high enough, they will not get a personal allowance at all (over £122,000 in 2016-17; over £121,200 in 2015-16) .

From 6 April 2015, 10% of the personal allowance is transferable between spouses and civil partners. This is usually done on-line. The allowance cannot be transferred if either partner pays higher rate (40%) tax.

Age Allowance – available up to 5 April 2016

Up to 5 April 2013, there was a higher rate of personal allowance (often called the ‘Age Allowance’) for people aged 65 or more. From 6 April 2013, these allowances were frozen and are no-longer be available to new claimants.

From April 2016, there will be single personal allowance as the frozen ‘Age Allowance’ of £10,660 is lower that the £11,000 available to everyone.

(There used to be two levels of age allowance: one for those born between 6 April 1938 and 5 April 1948, and the other for those born before 6 April 1938. But from 5 April 2015 the standard personal allowance for people born after 5 April 1948 (at £10,600) was greater that the ‘age allowance’ which was available for those born between 6 April 1938 and 5 April 1948 (of £10,500)).

The age allowances were targeted towards older tax payers who are also on lower incomes. If your income was below a set level (£27,000 for 2014-15; £27,700 for 2015-16) you received the full amount of the allowance. If your income went above this set level, your age allowance fell. It went down by £1 for every £2 of extra income, until it was the same as the basic personal allowance.

This means that if you qualified for the age allowance for people born before 6 April 1938, and your income was £27,820 in 2015-16 (£28,320 in 2014-15), your personal allowance was reduced to the standard £10,600 (£10,000 in 2014-15).

Note: The income figure used to calculate any restriction on your age allowance is reduced by gifts to charity under the gift aid scheme and a few other items – like business losses.

Example:

If your income in 2014-15 was £27,500 (£500 over the limit) and you are aged 78, your personal allowance will be £10,660 less £250 (half of £500), so £10,410. (The impact in 2015-16 was much reduced – as the age allowance was only £60 more than the basic allowance).

Blind Person’s Allowance

A person who is registered blind with a local authority in England and Wales is entitled to an additional amount of tax-free income. In Scotland or Northern Ireland you will qualify for the allowance if your eyesight is such that you are unable to perform any work where your eyesight is essential.

The allowance is £2,290 for 2016-17, (£2,290 for 2015-16). This allowance is given in addition to the usual personal allowance or age allowance.

A blind person who has not got enough income to use this allowance can transfer it, or part of it, to his or her husband or wife, or civil partner.

There are more details about the allowance on the HM Revenue and Customs website pages at https://www.gov.uk/blind-persons-allowance

Married Couple’s Allowance

To qualify for the married couple’s allowance at least one member of the couple must have been born before 6 April 1935. This means that it is now only available to couples where one member was at least 81 on 5 April 2016. Since 5 December 2005, this allowance applies to civil partners as well as married couples.

The married couple’s allowance is different from all the other personal allowances. It is given as a reduction to the tax bill. The maximum reduction for 2016-17 and 2015-16 is £835.50 (2014-15 £816.50) from the tax due.

The reduction of tax is worked out as 10% of the amount of the allowance. The allowance is £8,355 for 2016-17 and 2015-16 (£8,165 for 2014-2015), but, like age allowance, the married couple’s allowance goes down by £1 for every £2 of income over the income limit (of £27,700 for 2016-17 and 2015-16; £27,000 for 2014-2015).

There is a minimum amount you will get, whatever your income. In 2016-17 and 2015-16 this amount is £3,220 (2014-15 – £3,140) – that is £322 will be taken off your tax bill (£3,220 at 10%). The equivalent figures for 2014-15 was a tax saving of £314 (based on £3,140 at 10%).

If you are getting both age allowance and married couple’s allowance, and your income is over the income limit, then the age allowance is reduced first. This only applies for tax years to up to 5 April 2016.

There are a number of elections relating to the married couple’s allowance and their impact on PAYE codings is complex.

Further information on the married couple’s allowance can also be found on the HMRC website page at https://www.gov.uk/married-couples-allowance

The Marriage Allowance

From 6 April 2015 it is possible for some couples to transfer 10% of the personal allowance between them. This is being called the ‘Marriage Allowance’. It is completely different from the Married Couple’s Allowance. (The Married Couple’s Allowance is a reduction in the tax bill which can be claimed by some couples aged 81 or over on 5 April 2016).

Conditions
The conditions are:

  • You are married or civil partners
  • Neither you nor your partner pay tax at higher (40%) or additional (45%) rates
  • You cannot claim both Marriage Allowance and Married Couple’s Allowance (couples were one member is over 81, will claim Married Couple’s Allowance instead)

The amount you transfer in 2106-17 is £1,100 (2015-16 is £1,060). That is 10% of the personal allowance of £11,000. The maximum tax saving is £220 in the year to 5 April 2017 (this is 20% x £1,100).

Making a claim

The partner with the lower income should make the claim.

You will need some information to prove your identity to HMRC. So make sure you have the details to hand:

  • the last 4 digits of the account that your child benefit, tax credits or pension is paid into
  • the last 4 digits of an account that pays you interest
  • details from your year end pay and tax summary form (P60). Your employer should have given you this form for the year to 5 April before 31 May.

You will also need both your own and your partner’s National Insurance numbers.

Go to https://www.gov.uk/marriage-allowance to make your claim.

If you are unable to make a claim on-line, you may phone HMRC on 0300 200 3300 and ask to make a Marriage Allowance claim. You will need the information listed above.

What happens next?

If your partner has income taxed under PAYE, such as an employment or pension, then their PAYE tax code will be increased by the amount of the available Marriage Allowance. This will mean that they pay slightly less tax.

More information

There is information on the Marriage Allowance on the Gov.uk website at https://www.gov.uk/marriage-allowance-guide.