In the UK tax system, personal allowance is the threshold above which income tax is levied on an individual's income. A person who receives less than their own personal allowance in taxable income (such as earnings and some benefits) in a given tax year does not pay income tax; otherwise, tax must be paid according to how much is earned above this level. Certain residents are entitled to a larger personal allowance than others. Such groups include: the over-65s (followed by a further increased allowance for over-75s), blind people, and married couples where at least one person in the marriage (or civil partnership) was born before 6 April 1935. People earning over £100,000 a year have a smaller personal allowance. For every £2 earned above £100,000, £1 of the personal allowance is lost; meaning that incomes high enough will not have a personal allowance.
On 22 April 2009, the then Chancellor Alistair Darling announced in the 2009 Budget statement that starting in April 2010, those with annual incomes over £100,000 would see their Personal allowance reduced by £1 for every £2 earned over £100,000, until the Personal allowance was reduced to zero, which (in 2010–11) would occur at an income of £112,950.
For every additional £100 earned, the Personal allowance was reduced by £50, meaning that an additional £50 would be taxed at the marginal rate (40%), resulting an additional tax liability of £20, resulting in an effective additional 20% marginal taxation over and above the 40% tax already due.
This resulted in an anomalous effective 60% marginal tax rate in the income band between £100,000 and £112,950, with the marginal tax rate returning to 40% above £112,950. As the Personal allowance has grown over the years, this has resulted in a corresponding increase in the size of the effective marginal 60% tax band. As of 2022–23, the effective 60% marginal tax rate now arises for incomes between £100,000 and £125,140.
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On 22 June 2010, the new Chancellor George Osborne, as part of the coalition deal which sought to increase the Personal Allowance to £10,000 from April 2015 as per Lib Dem policy, [1] made the first increase of £1,000, making it £7,475 for the 2011-12 tax year. [2] During the 2011 Budget, the allowance was raised by £630 to £8,105 from April 2012.[ citation needed] In 2013, George Osborne revised the plans to increase the Personal Allowance and bring forward the date at which it would reach the £10,000 target. This resulted in the allowance being raised to £9,440 from April 2013, before being increased to £10,000 from April 2014, a year earlier than originally planned. [3] [4] [5] All these increases in the personal allowance came from rises in the personal tax. [5] [3] In 2016, Osborne determined that the tax increases no longer applied for personal allowance and decided to cut taxes personal taxes £1,000 less than the 2011 level when he increased the personal allowance to £11,500. [6]
Married Man's allowance was the allowance for a legally married couple. The allowance was given at the man's highest rate of tax. During the early-1990s, then- Chancellor of the Exchequer, Norman Lamont overhauled the allowance and introduced the 10% allowance,[ clarification needed] which meant that all men had the same amount of money in their pocket,[ clarification needed] irrespective of highest tax rate. The allowance was scrapped from April 2000, first being announced in then-Chancellor Gordon Brown's 1999 budget, [7] [8] with the exception of people married, or in civil partnerships (introduced in 2005) where one spouse was born before 6 April 1935.
Year | Allowance (£) | ||
---|---|---|---|
Age under 65 | Age 65-74 | Age over 75 | |
1988-89 | 2,605 [9] | - | - |
1996–97 | 3,765 | - | - |
1997–98 | 4,045 | - | - |
1998–99 | 4,195 | - | - |
1999–00 | 4,335 | - | - |
2000–01 | 4,385 | - | - |
2001–02 | 4,535 | - | - |
2002–03 | 4,615 | - | - |
2003–04 | 4,615 | - | - |
2004–05 | 4,745 | - | - |
2005–06 | 4,895 | - | - |
2006–07 | 5,035 | - | - |
2007–08 | 5,225 [10] | - | - |
2008–09 | 6,035 | - | - |
2009–10 | 6,475 | - | - |
2010–11 | 6,475 | - | - |
2011–12 | 7,475 | - | - |
2012–13 | 8,105 | - | - |
2013–14 | 9,440 [11] | 10,500 | 10,660 |
2014–15 | 10,000 [11] | 10,500 | 10,660 |
2015–16 | 10,600 [12] | - | - |
2016–17 | 11,000 [12] | - | - |
2017–18 | 11,500 [13] | - | - |
2018–19 | 11,850 [14] | - | - |
2019–21 | 12,500 [15] [16] | - | - |
2021–26 | 12,570 [17] | - | - |