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What is the Income Tax Personal Allowance and can I make savings?

The Personal Allowance is the amount each individual is entitled to receive free of Income Tax each year. Everyone is entitled to it until they reach a certain income threshold.

The basic Personal Allowance for the tax year 2022/23 is £12,570.

For those whose income is over £100,000, the allowance is reduced by £1 for every £2 received over the £100,000 level.

An individual whose income is over £125,140 won’t receive any Income Tax allowance.

The Personal Allowance figures change most tax years but are fixed until the 2027 to 2028 tax year.

How is it applied?

Depending on what income you receive, and how you received it, your Personal Allowance is applied in different ways.

If you’re an employee on a salary, your employer will apply your Personal Allowance to your wages when they are working out how much Income Tax to deduct from your wages via your tax code.

If you’re self-employed and have no other income, you’ll take your Personal Allowance off your profit before working out how much Income Tax to pay.

The Marriage Allowance

From 6 April 2015, it became possible for some couples to transfer 10 per cent of their allowance between them by claiming the Marriage Allowance.

Conditions to be met to be able to claim include:

The amount you can transfer in 2022-23 is £1,260. That is 10 per cent of the personal allowance of £12,570 (rounded up). The maximum tax saving is £252 in the year to 5 April 2023, ie: 20 per cent x £1,260 = £252.

Making a claim

To benefit as a couple, the lower earner must normally have an income below their Personal Allowance.

We hope you found this blog useful. It is one of a series on Income Tax in the next few weeks.

Need advice on your Personal Allowance and related tax matters? Contact us.


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