2023 Tax Allowances
This article has been provided by Tax Help for Older People.
If you are a UK taxpayer you may be entitled to some tax allowances. These tax allowances can reduce the amount of tax that you pay.
Not all allowances work in the same way, some reduce the amount of income on which you have to pay tax, whilst others (like Married Couple’s Allowance) provide a tax credit that can reduce the amount of tax you have to pay. Some of these allowances are given automatically to those who qualify, but others like the Marriage Allowance or Blind Person’s Allowance are given to those who claim it.
Here are some of the most common allowances available:
- Personal Allowance
- Blind Person’s Allowance
- Married Couple’s Allowance
- Marriage Allowance
- Personal Savings Allowance
- Starting rate for savings
- Dividends Allowance
- Property Allowance and Trading Allowance
This tells us how much taxable income we can receive before paying tax. It is generally used against income from employment and pensions, including the State Pension, and is allocated via the PAYE system, but it can also be used as a tax allowance against other types of income such as interest on savings.
For the tax year, 2022/23 the Personal Allowance was £12,570 and it remains at this level for the tax year 2023/24, which starts on 6 April 2023.
If you have income above £100,000 a year you will find that your Personal Allowance will reduce and if your income exceeds £125,140 you will lose all of your Personal Allowance.
Blind Person’s Allowance (BPA)
Blind Person’s Allowance is an extra amount of tax free allowance that is added to your Personal Allowance, which means you can receive more income before starting to pay tax.
For the tax year, 2022/23 the allowance was £2,600, which is increasing to £2,870 for 2023/24. It is paid regardless of age or income. If you and your spouse or civil partner are both eligible, you can each get this allowance. It is transferable to your spouse or civil partner if you do not pay tax or have insufficient income to use all the allowance.
In England and Wales, BPA is available to anyone who has a certificate or similar, which says you’re severely sight impaired and they have registered as such with their local Council. In Scotland and Northern Ireland it is available to anyone unable to undertake any work for which eyesight is essential. If you are entitled to BPA then you need to tell HMRC. You can do this by calling their dedicated helpline for BPA claims and enquiries: 0300 200 3301.
Married Couples Allowance (MCA)
MCA is only available to couples where at least one member of the marriage or civil partnership was born before 6 April 1935. As a general rule, you need to be living together to benefit from MCA, but if you are separated due to circumstances rather than a decision to formally separate then you will still be entitled to this allowance. The MCA for 22/23 was £9,415 but it is given at 10% so is best viewed as a simple tax reduction of £941.50 and for 2023/24 it is £10,375 which would reduce your tax by £1,037.50.
MCA can be transferred between individuals or shared, depending on what arrangement provides the best tax reduction. If your income goes above £31,400 in 2022/23 (£34,600 for 2023/24) then MCA is reduced, but it cannot reduce below the minimum allowance of £3,640 for 2022/23 (£4,010 for 2023/24).
Marriage Allowance (MA)
If you are too young to benefit from MCA then you may qualify for Marriage Allowance instead – be aware that you cannot have both though.
MA can be claimed by a married couple or civil partnership where both partners are no more than basic rate taxpayers (so you cannot claim MA if you are a higher rate taxpayer). It allows the person with the lower income to transfer 10% of their Personal Allowance to their spouse or civil partner.
Where the Personal Allowance is £12,570, the MA transfer will result in a transfer of £1,260. So the person who is transferring 10% of their Personal Allowance to their spouse/civil partner will find their PA reduces to £11,310. The PA of the person receiving the MA transfer will increase to £13,830, which could save them up to £252 in tax. New claims can be backdated for up to 4 years if appropriate. Note that it is the person who is giving up part of their PA that has to apply for the MA transfer.
MA transfers can be claimed online via www.gov.uk or by writing to HMRC at: PAYE, HM Revenue and Customs, BX9 1AS.
Personal Savings Allowance (PSA)
The Personal Savings Allowance permits £1,000 of taxable savings interest to be received tax free per tax year by anyone who is either a non-tax payer or a basic rate tax payer. Savings income includes interest from banks, building societies, NS&I investments and the interest on PPI payments. If you are a higher rate tax payer, the PSA reduces to £500 per tax year.
Starting Rate for Savings
There is a tax rate of 0% for savings interest known as the starting rate, and this is available for a band of savings interest of £5,000 above the Personal Allowance. Whether or not you can benefit from this 0% band is dependent on your other (non-savings) income. An example might help to demonstrate what is meant by this:
Suppose you have income from employment and/or pensions of £14,000 pa plus untaxed interest of £3,500.
You will pay tax at 20% on £1,430 of your employment/pension income because it exceeds your Personal Allowance of £12,570.
Of your untaxed interest, you will not have to pay tax on £1,000 as it is covered by your Personal Savings Allowance. This leaves a further £2,500 of untaxed interest on which tax may be due. This is where the Starting Rate comes into play, and is calculated as follows:
PA £12,570 + Starting Band £5,000 = £17,570 minus your non-savings income (i.e. your employment/pension income) of £14,000 = £3,570. So you would be entitled to receive £3,570 of untaxed interest in addition to the £1,000 covered by your PSA. So, in this example, no tax would be due on the £3,500 untaxed interest received.
You can see from this calculation that a person may benefit from all the Starting Rate, none of it, or something in between.
For the tax year, 2022/23, the Dividend Allowance permits £2,000 of non-ISA dividend income tax free. If your income from dividends exceeds this amount, but is below £10,000 pa, then you need to contact HMRC to tell them. If your dividend income exceeds £10,000 pa then you will need to complete a tax return. The Dividend Allowance is due to decrease to £1,000 pa for 2023/24.
Property Allowance and Trading Allowance
These are separate allowances of £1,000 each and they work in a similar way.
The Property Allowance means that rental income up to £1,000 pa is tax free. You can deduct either Property Allowance or expenses from your gross rental income depending on which is most beneficial for your circumstances.
Similarly, the Trading Allowance permits income from self-employment up to £1,000 pa tax free. If your self-employment income exceeds this, then you can deduct either the Trading Allowance or expenses from your gross trading income. Please remember that if your rental income exceeds £1,000 pa then you will need to complete a tax return, and the same is true if you receive more than £1,000 pa from trading/self-employment.
If you are over 60, you can contact Tax Help for Older People by calling the helpline on 01308 488066. The helpline is open 9.00 am to 5.00 pm Monday to Friday. If the line is busy, or you want to call outside office hours, then please leave a message and an adviser will call you back. You can also email at: firstname.lastname@example.org
Alternatively, if you are under 60, you can contact TaxAid, on the helpline number 0345 120 3779, and again please leave a message if the line is busy. This helpline is also open 9.00 am to 5.00 pm Monday to Friday. If you would prefer to send an email enquiry, please send it to email@example.com
This article is by Tax Help for Older People Registered Charity no 1102276 (Scotland no SC045819), offering free tax advice to older people on a low income who cannot afford professional help.