Personal allowance

Last updated

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.

Contents

Personal allowance tapering

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.

History

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

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.

History of allowances

YearAllowance (£)
Age under 65Age 65-74Age over 75
1988-892,605 [9] --
1996–973,765--
1997–984,045--
1998–994,195--
1999–004,335--
2000–014,385--
2001–024,535--
2002–034,615--
2003–044,615--
2004–054,745--
2005–064,895--
2006–075,035--
2007–085,225 [10] --
2008–096,035--
2009–106,475--
2010–116,475--
2011–127,475--
2012–138,105--
2013–149,440 [11] 10,50010,660
2014–1510,000 [11] 10,50010,660
2015–1610,600 [12] --
2016–1711,000 [12] --
2017–1811,500 [13] --
2018–1911,850 [14] --
2019–2112,500 [15] [16] --
2021–2612,570 [17] --

See also

Related Research Articles

<span class="mw-page-title-main">Progressive tax</span> Form of tax

A progressive tax is a tax in which the tax rate increases as the taxable amount increases. The term progressive refers to the way the tax rate progresses from low to high, with the result that a taxpayer's average tax rate is less than the person's marginal tax rate. The term can be applied to individual taxes or to a tax system as a whole. Progressive taxes are imposed in an attempt to reduce the tax incidence of people with a lower ability to pay, as such taxes shift the incidence increasingly to those with a higher ability-to-pay. The opposite of a progressive tax is a regressive tax, such as a sales tax, where the poor pay a larger proportion of their income compared to the rich.

<span class="mw-page-title-main">Alistair Darling</span> British Labour politician

Alistair Maclean Darling, Baron Darling of Roulanish, is a British politician who served as Chancellor of the Exchequer under Prime Minister Gordon Brown from 2007 to 2010. A member of the Labour Party, he was a Member of Parliament (MP) from 1987 until he stepped down in 2015, most recently for Edinburgh South West.

<span class="mw-page-title-main">George Osborne</span> Former Conservative politician, newspaper editor

George Gideon Oliver Osborne is a former British politician and newspaper editor who served as Chancellor of the Exchequer from 2010 to 2016 and as First Secretary of State from 2015 to 2016 in the Cameron government. A member of the Conservative Party, he was Member of Parliament (MP) for Tatton from 2001 to 2017. He was editor of the Evening Standard from 2017 to 2020.

Tax brackets are the divisions at which tax rates change in a progressive tax system. Essentially, tax brackets are the cutoff values for taxable income—income past a certain point is taxed at a higher rate.

<span class="mw-page-title-main">Taxation in the United Kingdom</span> United Kingdom tax codes

In the United Kingdom, taxation may involve payments to at least three different levels of government: central government, devolved governments and local government. Central government revenues come primarily from income tax, National Insurance contributions, value added tax, corporation tax and fuel duty. Local government revenues come primarily from grants from central government funds, business rates in England, Council Tax and increasingly from fees and charges such as those for on-street parking. In the fiscal year 2014–15, total government revenue was forecast to be £648 billion, or 37.7 per cent of GDP, with net taxes and National Insurance contributions standing at £606 billion.

Working Tax Credit (WTC) is a state benefit in the United Kingdom made to people who work and have a low income. It was introduced in April 2003 and is a means-tested benefit. Despite their name, tax credits are not to be confused with tax credits linked to a person's tax bill, because they are used to top-up wages. Unlike most other benefits, it is paid by HM Revenue and Customs (HMRC).

This is a list of the maximum potential tax rates around Europe for certain income brackets. It is focused on three types of taxes: corporate, individual, and value added taxes (VAT). It is not intended to represent the true tax burden to either the corporation or the individual in the listed country.

The starting rate of income tax, known as the 10p rate, was a special rate of personal income taxation in the United Kingdom that existed from 1999 to 2008.

<span class="mw-page-title-main">2009 United Kingdom budget</span>

The 2009 United Kingdom Budget, officially known as Budget 2009: Building Britain's Future, was formally delivered by Alistair Darling in the House of Commons on 22 April 2009. It introduced new tax, spending and debt rises in a financial environment of rising unemployment and recession.

<span class="mw-page-title-main">June 2010 United Kingdom budget</span>

The June 2010 United Kingdom Budget, officially also known as Responsibility, freedom, fairness: a five-year plan to re-build the economy, was delivered by George Osborne, Chancellor of the Exchequer, to the House of Commons in his budget speech that commenced at 12.33pm on Tuesday, 22 June 2010. It was the first budget of the Conservative-Liberal Democrat coalition formed after the general election of May 2010. The government dubbed it an "emergency budget", and stated that its purpose was to reduce the national debt accumulated under the Labour government.

<span class="mw-page-title-main">2011 United Kingdom budget</span>

The 2011 United Kingdom budget, officially called 2011 Budget – A strong and stable economy, growth and fairness, was delivered by George Osborne, the Chancellor of the Exchequer, to the House of Commons on 23 March 2011.

<span class="mw-page-title-main">Income tax in Scotland</span> Form of taxation in Scotland

Income tax in Scotland is a tax of personal income gained through employment. This is a tax controlled by the Scottish Parliament, and collected by the UK government agency HM Revenue & Customs.

<span class="mw-page-title-main">Value-added tax in the United Kingdom</span>

In the United Kingdom, the value added tax (VAT) was introduced in 1973, replacing Purchase Tax, and is the third-largest source of government revenue, after income tax and National Insurance. It is administered and collected by HM Revenue and Customs, primarily through the Value Added Tax Act 1994.

<span class="mw-page-title-main">2012 United Kingdom budget</span>

The 2012 United Kingdom budget was delivered by George Osborne, the Chancellor of the Exchequer, to the House of Commons on Wednesday 21 March 2012.

<span class="mw-page-title-main">2013 United Kingdom budget</span>

The 2013 United Kingdom budget was delivered by George Osborne, the Chancellor of the Exchequer, to the House of Commons on Wednesday 20 March 2013.

<span class="mw-page-title-main">1981 United Kingdom budget</span>

The 1981 United Kingdom budget was delivered by Geoffrey Howe, the then Chancellor of the Exchequer, to the House of Commons on 10 March 1981. It was Geoffrey Howe's third budget and the second of the first Thatcher ministry. The budget represented a strongly monetarist response to the stagflation and high government borrowing which the UK was suffering at the time. The budget speech lasted for 91 minutes.

<span class="mw-page-title-main">July 2015 United Kingdom budget</span>

The 2015 United Kingdom summer budget was delivered by George Osborne, the Chancellor of the Exchequer, to the House of Commons on Wednesday, 8 July 2015.

<span class="mw-page-title-main">Chancellorship of George Osborne</span> George Osbornes tenure at HM Treasury (2010–2016)

George Osborne served as Chancellor of the Exchequer from May 2010 to July 2016 in the David Cameron–Nick Clegg coalition Conservative-Liberal Democrat government and the David Cameron majority Conservative government. His tenure pursued austerity policies aimed at reducing the budget deficit and launched the Northern Powerhouse initiative. He had previously served as Shadow Chancellor in the Shadow Cabinet of David Cameron from 2005 to 2010.

<span class="mw-page-title-main">November 1993 United Kingdom budget</span>

The November 1993 United Kingdom budget was delivered by Kenneth Clarke, the Chancellor of the Exchequer, to the House of Commons on 30 November 1993. It was the second budget to be presented in 1993, and the first to be presented by Clarke following his appointment as Chancellor by Prime Minister John Major earlier that year. The November 1993 budget was also the first in the modern era to be held in the autumn, the government having decided to move the date of the budget so it could outline its tax and spending plans at the same time.

<span class="mw-page-title-main">1992 United Kingdom budget</span>

The 1992 United Kingdom budget was delivered by Norman Lamont, the Chancellor of the Exchequer, to the House of Commons on 10 March 1992. It was the second budget to be presented by Lamont. It was also the last before the 1992 general election, which was called the following day, and shaped the Conservative Party's election campaign for that year.

References

  1. ↑ Wall, Emma (21 May 2010). "How does the Budget affect me? Income Tax". The Daily Telegraph. London.
  2. ↑ "Emergency Budget 22 June 2010". HM Revenue & Customs. Retrieved 25 June 2010.
  3. 1 2 Dassanayake, Dion (20 March 2013). "Budget 2013: Personal tax allowance rise to £10,000 brought forward 12 months". Express.co.uk.
  4. ↑ Hall, James (22 March 2012). "Budget 2012: Hidden blow in raised personal tax allowance". The Daily Telegraph. London. Archived from the original on 23 March 2012.
  5. 1 2 Mason, Rowena (20 March 2013). "Budget 2013: Millions of workers get £100 tax cut". The Daily Telegraph. London.
  6. ↑ "Osborne: Rise in tax-free allowance" – via www.bbc.com.
  7. ↑ "Gordon Brown: A decade of Budgets". BBC News. 18 March 2007.
  8. ↑ Whitehead, Tom; Hope, Christopher (1 January 2009). "Married couples 'punished by tax system'". The Daily Telegraph. London.
  9. ↑ "Economy: 1988 Budget (Lawson 5) | Margaret Thatcher Foundation". www.margaretthatcher.org.
  10. ↑ "Rates and Allowances - Income Tax". HM Revenue & Customs. Retrieved 30 May 2009.
  11. 1 2 Collinson, Patrick (20 March 2013). "2013 & 2014 Personal Allowances". London: the guardian. Retrieved 21 March 2013.
  12. 1 2 "Income Tax rates and allowances for current and past years". GOV.UK.
  13. ↑ "Budget 2015: As it happened". BBC News.
  14. ↑ "Summary of Budget 2017: Key points at-a-glance". 22 November 2017 – via www.bbc.co.uk.
  15. ↑ "Budget 2020: What we already know about our changing finances". BBC News. 6 March 2020. Retrieved 20 March 2020.
  16. ↑ "At-a-glance summary: Budget key points". BBC News. 29 October 2018. Retrieved 29 October 2018.
  17. ↑ "Rates and thresholds for employers 2021 to 2022". 2 February 2021. Retrieved 3 February 2021.
This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.