Your personal allowance

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 (i.e. aged 77+) 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
• Allowances for children

The Personal Allowance

Each tax year their 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 2012/13 the basic personal allowance available to all UK resident individuals aged under 65 is £8,105 (2011-12 £7,475). People with income above £100,000 will have their personal allowance reduced – if their income is high enough (over £116,210) they will not get a personal allowance at all.

Age Allowance

There is a higher rate of personal allowance for older people. It is often called the ‘Age Allowance’. There are two levels of age allowance: one for those who will be 65 or over in the tax year, and the other for those who are 75 or over (£10,500 and £10,660 respectively in 2012/13). You are entitled to the higher  allowance in full for the year in which your 65^th or 75^th birthday falls. The Budget proposals in March 2012 include freezing these allowances from April 2013 for those currently entitled and abolishing them for new claimants.

The age allowances are targeted towards older tax payers who are also on lower incomes. If your income is below a set level (£25,400 for 2012/13) you will receive the full amount of the allowance. If your income goes above this set level, your age allowance will go down. It goes down by £1 for every £2 of extra income, until it becomes the same as the basic ‘under 65’ personal allowance. This means that if you are 65 or older and your income is £30,190 or higher, your personal allowance will be reduced to £8,105. If you are 75 or older, your income would need to be £30,510 or over for your personal allowance to be reduced to £8,105.

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 2012/13 is £27,500 (£2100 above the threshold) and you are 66 years old, your personal allowance will be £10,500 less £1050 (half of £2100) so £9,450.

If your income in 2012/13 is £26,100 and you are 75 years old, your personal allowance will be £10,660 less £1050 so £9,610.

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 £2,100 in 2012-2013. 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 at http://www.hmrc.gov.uk/incometax/blind-person-allow.htm.

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 is at least 77. 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 2012-2013 is £770.50 from the tax due.

The reduction of tax is worked out as 10% of the amount of the allowance. The allowance is £7,705 for 2012-2013, but (like age allowance) the married couple’s allowance goes down by £1 for every £2 of income over the limit of £25,400 (for 2012-2013). But there is a minimum amount you will get. In 2012-13 this amount is £2,960 – that is £296 (£2,960 at 10%) will be taken off your tax bill. If you are getting both age allowance and married couple’s allowance, and your income is over the £25,400 limit (for 2012-13), then the age allowance is reduced first.

There are a number of elections relating to the married couple’s allowance and their impact on PAYE codings is complex. These issues are looked at in the section for Pensioners.

Further information on the married couple’s allowance can also be found on the HMRC website at

http://www.hmrc.gov.uk/incometax/married-allow.htm