Utilising allowances and lower rate bands

By Tolley

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

  • Utilising allowances and lower rate bands
  • Why this is important
  • Consider the family
  • Investment income
  • Anti-avoidance provisions
  • Action to take before year end

Why this is important
Personal allowance

In general, the personal allowance cannot be transferred to another person or carried into another tax year, although in limited circumstances all or part of certain allowances can be transferred to a spouse or civil partner, see below.

ITA 2007, s 35(1)

If the individual does not have enough taxable income to set against the allowance for the tax year, the benefit of that allowance is lost for that year. See the Personal allowance guidance note.

The personal allowance is also lost or reduced for the tax year in the following circumstances:

  • where the taxpayer elects to use the remittance basis, he loses the right to use any UK personal allowance, blind person’s or married couple’s allowance for that tax year. For more information, see the Remittance basis ― overview guidance note (ITA 2007, s 809G)
  • where the taxpayer has adjusted net income that exceeds £100,000, his personal allowance is reduced by £1 for every £2 of income over and above that threshold. See the Personal allowance guidance note for the definition of adjusted net income (ITA 2007, s 35(2)–(4))

Therefore, it is important to review the use of personal allowances for both low-income and high-income clients.

Transferable allowances

The married couple’s and blind person’s allowances can be transferred between spouses / civil partners, where the recipient of the allowances does not have sufficient income or tax liability to use the allowance.

ITA 2007, ss 39, 51, 52

See the Married couple’s allowance guidance note and Table ― married couple's allowance elections and transfers.

See the Blind person’s allowance guidance note.

From 6 April 2015, certain individuals can effectively transfer 10%

More on Income tax: