Personal tax allowances apply regardless of age for the tax year 2016/2017 whereas previously they were affected by when you were born.
For those born after 5 April 1938 the personal allowance was £10,600. Those born before 6 April 1938 had a slightly higher allowance. Legislation has already been enacted to increase the personal allowance to £11,000 in 2016/17.
High earners’ personal allowances
Not everyone has the benefit of the full personal allowance. There has been a reduction in the personal allowance for those with ‘adjusted net income’ over £100,000 which is £1 for every £2 of income above £100,000. So for 2015/16 there is no personal allowance where adjusted net income exceeds £121,200 (£122,000 for 2016/17).
Tax bands and rates
The basic rate of tax is currently 20%. The band of income taxable at this rate is £31,785 so that the threshold at which the 40% band applies is £42,385 for those who are entitled to the full basic personal allowance.
Legislation has already been enacted to increase the basic rate limit to £32,000 for 2016/17. The higher rate threshold will therefore rise to £43,000 in 2016/17 for those entitled to the full personal allowance.
The additional rate of tax of 45% remains payable on taxable income above £150,000.
Tax bands and personal allowance for 2017/18
The Chancellor has announced that the personal allowance will be increased to £11,500 and the basic rate limit increased to £33,500 for 2017/18. The higher rate threshold will therefore rise to £45,000 for those entitled to the full personal allowance.
To get help with your tax return, you can contact your local accountants in Hazel Grove, on 0161 456 9666.