Personal Tax Allowance Quick Guide

In this article we take a look at the Personal Tax Allowance? What is it? What different types are available and how much can you get?

What is the Personal Tax Allowance?

The Personal Tax Free Allowance is the amount of money that you can earn without paying tax. If you are eligible and the money you receive is less than a certain threshold you don’t need to pay tax.

What different types of allowance are available?

When people talk about the Personal Allowance they are usually talking about the basic personal allowance that is applied to income tax. However, there are a number of these allowances that could be available to you. These are:

• Income Tax Allowance
• Marriage Allowance
• Personal Savings Allowance
• Dividend Allowance
• Blind Person’s Allowance
• Trading and Property Allowance

And its worth going into each of these in a bit more detail.

Income Tax Allowance

You can receive £12,500 income in the UK without paying tax as long as your total income is £100,000 or less. However, if your total income is above £100,000 the amount you receive is reduced by £1 for every £2 you receive.

So if your total income is £100,002 your basic personal allowance will be £12,499, but if your total income is £125,000 or more you aren’t eligible to receive the allowance.

It is also worth being aware of the fact that the actual income tax you pay (above the basic personal allowance) increases as your income increases.

Between £12,500 and £50,000 you pay 20% (the basic rate) and above £50,000 you pay 40% (the higher rate).

Marriage Allowance

With the Marriage Allowance, you can transfer £1,250 of your Income Tax Personal Allowance to your partner (married or civil partner).

To do this, your income would need to be less than £12,500 (the basic personal allowance) and your partner’s income would need to be between £12,501 and £50,000.

You can calculate how much tax you could save as a couple here.

Personal Savings Allowance

Savings interest is tax free up to £1,000 if you are a basic rate tax payer and £500 if you are a higher rate tax payer.

Dividend Allowance

Dividends you receive from shares are tax free up to £2,000.

Blind Person’s Allowance

If you are blind or have severely impaired sight you can increase your Personal Tax Allowance by £2,500, which would give you a £15,000 allowance.

Trading and Property Allowance

You can generate up to £1,000 through property or trading (buying and selling things) without needing to pay tax. They are treated separately so if you earn income from both, you can get an allowance for each of them.

Self Assessment Tax Return

If you earn money in the UK as a non resident you should usually complete a self assessment tax return. To do this you will need to register with HMRC and get a Unique Tax Payer Reference (UTR) number. If you don’t already have one you can call HMRC on 0300 200 3310.

Once you have a UTR you can complete your tax return and send it to HMRC. You used to be able to do this online using HMRC’s own system, but that is no longer the case. Instead you must do one of the following:

• Fill in a self assessment tax return and an sa109 form and send them by post
• Use commercial self assessment software that supports an sa109 reporting option
• Or Get a tax professional or accountant to report your UK income for you

If you’ve got a lot of time on your hands and like doing things yourself then you could go with the first option. If you take this option make sure you start early. This isn’t something you are going to be able to do last minute. One or two assets in the UK can equate to a day of form filling. Then you’ve got postal service delivery time to take into consideration.

If you want to save a lot of time and receive guidance and tips that could reduce what you actually pay then the software option will be better for you. I’ve compared some software options here.

That said you could save even more time and possibly money if you get a tax professional to do everything for you. The initial fees you pay might be more but if you’ve got multiple assets in the UK this is an option you might want to consider as it could save substantial time and money in the long run. I’ve talked about how you can go about finding a good tax accountant here.

Who is eligible?

You should be eligible for the Personal Tax Allowance providing one or all of the following apply:

• You hold a British passport
• You’re a citizen of a European Economic Area (EEA) country
• You’ve worked for the UK government at any time during that tax year

If you’re not a UK resident, you can claim the Personal Allowance at the end of each tax year in which you have UK income by sending form R43 to HM Revenue and Customs (HMRC).