Produced by Tolley
  • 19 Oct 2021 22:31

The following Personal Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Personal allowance
  • Personal allowance
  • Tax efficient use of the personal allowance
  • Income limit for the personal allowance
  • Year of death
  • Reporting
  • Tax planning
  • Overseas aspects
  • Reporting

Personal allowance

The personal allowance is a deduction against net income that is available to all UK resident individuals (and some non-residents, see below). The basic personal allowance for 2021/22 is £12,570 (£12,500 for 2020/21). The personal allowance is frozen at £12,570 until 5 April 2026.

Where an individual’s net income exceeds £100,000, the personal allowance is reduced by £1 for every £2 of income above £100,000.

A husband and wife / civil partners are treated as separate persons and so each is entitled to a personal allowance to set against their own personal income. Where one spouse / civil partner is working and the other is not, both personal allowances can be utilised by the transfer of income-producing assets to the non-worker. See the Utilising allowances and lower rate bands guidance note for more details.

From 6 April 2015, an individual is able to ‘transfer’ 10% of the personal allowance (£1,260 for 2021/22; £1,250 for 2020/21) to the spouse / civil partner, who receives a tax reduction of 20% of this amount. In order to make the transfer, both parties must not be higher rate or additional rate taxpayers. See the Transferable tax allowance guidance note.

Personal allowance

The personal allowance is a deduction from net income (ie a Step 3 deduction, see the Proforma income tax calculation guidance note).

It is generally true that if the individual has insufficient income in the tax year to use the allowance, it is lost; it is not possible to carry forward the unused proportion. However, from 2015/16, it may be possible to transfer 10% of the unused allowance to the spouse / civil partner, see the Transferable tax allowance guidance note.

To be entitled to a personal allowance, the individual must fall into one of the residence categories below:

  1. resident in the UK (see the Residence ― overview guidance note)

  2. UK national

  3. national of a state within the European Economic Area (EEA), see the GOV.UK website for the list

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