Understanding your income tax and personal allowance is important when looking at your finances and how you are taxed.
Everyone has a personal allowance, but what does this mean for you?
A personal allowance is the amount of money you are allowed to earn each tax year before you start paying income tax.
How much is the personal allowance?
The personal allowance for the current tax year is £12,570. This allowance is frozen until 2028.
Your personal allowance can be larger if you can utilise various allowances.
If you claim marriage allowance, you are able to transfer £1,260 of your personal allowance to your partner. This reduces tax by £252 in the tax year.
If you claim blind person’s allowance, your personal allowance is £2,520 for the 2021/2022 tax year or will be £2,600 for the 2022/2023 tax year.
It can also be smaller if your income is over £100,000, as your personal allowance will go down by £1 for every £2 that your adjusted net income is above £100,000.
As a result, you do not benefit from a personal allowance on taxable income over £125,140.
There are also tax-free allowances for:
There may also be tax-free trading and property allowances for:
How much income tax will you pay?
Most people do not pay income tax on all taxable income, as most people qualify for one or more allowances outlined above.
However, how they are taxed depends on their marginal rate, as follows:
From April 2023, the basic rate of income tax will be cut to 19 per cent.
The additional rate allowance is also changing and will be reduced from its current figure of £150,000 to £125,140 from April 2023.
If you need advice on related matters, contact us today.
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