Knowing what the tax free personal allowance is for the 2012/2013 tax year can help you work out if you are paying too much income tax.
Tax Free Income
Some income is tax-free. You do not have to tell HMRC about tax free income as you do not have to pay any tax on it. Types of income that are tax free include; interest from cash ISAs and certain National Savings & Investments (NS&I) products.
Tax Free Personal Allowances
There are two types of allowances:
- those that give full relief and allow you to earn a certain amount of money before paying tax
- those that give restricted relief, which reduce your tax bill by 10%
Personal Allowance
Almost all people are allowed to receive a certain amount of income in a tax year before they are required to pay any tax. This amount is known as the basic personal allowance, and is classed as a ‘full relief’ allowance. In 2012-13 the basic personal allowance for people under 65 was £8,105. In 2013-14 it rose to £9,440.
For those who earn above £100,000 tax free allowance progressively reduces, at the rate of £1 for every £2 above £100,000 you earn. Therefore anyone who earns £116,210 (2012-13) or £118,880 (2013-14) will receive no personal allowance, meaning all their income is taxed.
Tax Free Personal Allowances For Older People
Depending on what year they were born, older people may be entitled to a higher personal allowance than the basic rate. This is known as the age-related personal allowance.
People born before 6 April 1948 but aged under 75 are usually entitled to a personal allowance of £10,500.
People over 75 could get up to £10,660 of tax free personal allowance. However you are only entitled to the full amount of higher age-related allowance if your income during the 2012-13 tax year was £25,400 or less, or is £26,100 or less during 2013-14.
Over 65 with an income above £26,100 but below £100,000
Older people with an income of above £26,100 (£25,400 in 2012-13), will lose the higher allowance at the rate of £1 for every £2 that their income exceeds £26,100 (£25,400 in 2012-13).
Above a certain level of income, you lose any higher allowance and will be entitled only to the basic personal allowance. For those over 65 this will happen at £28,220 in 2013-14 (£30,190 in 2012-13) and for those over 75 at 28,540 in 2013-14 (£30,510 in 2012-13).
Over 65 with an income above £100,000
The reduction in basic personal allowance (by £1 for each £2 earned over the £100,000 limit) applies irrespective of age.
Blind person’s allowance
If you, your spouse or your registered civil partner are blind or have severely impaired sight you should be entitled to an additional tax free allowance.
This is another full relief allowance as it is treated in the same way as the personal allowance, so increases the amount of income you can receive before you start to pay tax. In 2013-14 this additional allowance is £2,160.
If you live in England or Wales, you will need to be certified as blind and appear on a local authority register of blind people to claim this allowance.
In Scotland and Northern Ireland though, things are slightly different. Even If you have not been certified as blind you will qualify for the allowance if your eyesight is so bad that you are unable to perform any work where your eyesight is essential.
If your income is not enough to make use of the allowance, any unused balance can be transferred to your spouse or registered civil partner.
Married Couple’s Allowance
This used to be an allowance given to all married couples, but you now qualify for this allowance only if you or your husband, wife or registered civil partner were born before 6 April 1935.
Unlike the personal allowance, the married couple’s allowance is not an amount you can earn before you start paying tax. Instead, it’s a restricted relief allowance, which means you can’t claim the whole amount. The tax you pay is reduced by deducting 10% of the allowance from your final tax bill.
The married couple’s allowance for 2013-14 for people born before 6 April 1935 is £7,915. This means if you receive the full married couple’s allowance of £7,915 in 2013-14, £791.50 will be taken off your tax bill (£7,915 x 10%).
Income above £26,100
The amount of married couple’s allowance you receive may be reduced if your income is more than £26,100 in 2013-14 (£25,400 in 2012-13).
If your income is above this limit though, age-related personal allowance is reduced first, by £1 for every £2 over the limit, until it falls to the basic personal allowance of £9,440 in 2013-14. If your income is above £100,000 your basic personal allowance is reduced at the same rate.
After this you lose married couple’s allowance at a rate of £1 for each remaining £2 of income above the limit, until you reach minimum married couple’s allowance of £3,040 in 2013-14.
Maintenance Relief
Maintenance relief is a tax allowance that you can claim if you make certain maintenance payments and either you or your ex-spouse or registered civil partner was born before 6 April 1935. To be eligible to claim this relief you must pay the maintenance under a legally binding agreement.
It works in a similar way to the married couple’s allowance. Your tax bill will be reduced by 10% of the maintenance relief allowance or the amount you pay in maintenance, if that amount is lower.
In 2013-14 maintenance relief allowance is £3,040, so if you are eligible to claim you’ll be able to deduct £304 or 10% of the amount you pay in maintenance, if that’s lower.
