Personal Allowance (UK)

Definition

Personal Allowance: The personal allowance is the amount of income an individual resident in the UK can earn each year before they start paying income tax. For the tax year 2016-17, the personal allowance was set at £11,000. Historically, there were additional allowances for individuals aged over 65 or over 75. However, these age-related allowances were frozen in 2013 and completely phased out by April 2016, simplifying the personal allowance structure.

Examples

Example 1: If an individual earns £15,000 per year, the first £11,000 would be tax-free due to the personal allowance, leaving £4,000 subject to income tax.
Example 2: An individual with an annual income of £8,000 would not pay any income tax since the income is below the personal allowance of £11,000 for the 2016-17 tax year.
Example 3: For a higher-income earner with an annual income of £50,000, the first £11,000 would be tax-free while the remaining £39,000 would be liable for taxation under the applicable tax rates.

Frequently Asked Questions

What is the personal allowance rate for the current tax year?

The personal allowance rate is subject to change annually. For the latest rate, you should consult the latest HMRC guidelines or official UK government tax resources.

Did the personal allowance rates change effective April 2016?

Yes, from April 2016, the additional age-related personal allowances were removed. The standard personal allowance applied broadly regardless of age.

Are there any circumstances where the personal allowance might be reduced?

Yes, if an individual’s income exceeds a certain threshold, the personal allowance may be reduced. Typically, personal allowances begin to taper off for those with an income over £100,000.

Does every UK resident automatically receive the personal allowance?

Yes, every individual resident in the UK is entitled to the personal allowance unless their income exceeds certain levels where it starts to reduce.

What happens if my income is below the personal allowance?

If your income is below the personal allowance, you will not have any taxable income and therefore you won’t pay any income tax.

Taxable Income: The portion of your income that is subject to income tax after personal allowances and other deductions have been considered.
Income Tax: A tax that governments impose on income generated by businesses and individuals within their jurisdiction.
Income Tax Allowances: Various allowances that individuals can claim to reduce the amount of income subject to tax, including personal allowances.

Online Resources

Suggested Books for Further Studies

Tolley’s Income Tax by David Smailes - A comprehensive guide to UK income tax laws and applications.
Taxation: Policy and Practice by Andy Lymer and Lynne Oats - An insightful book covering various aspects of UK taxation including personal allowances.
Core Tax Annuals: Income Tax 2016/17 by Mark McLaughlin, Iris Wünschmann-Lyall - Annual publication offering detailed updates on income tax policies and allowances.

Accounting Basics: “Personal Allowance (UK)” Fundamentals Quiz

### What is the personal allowance for the UK tax year 2016-17? - [x] £11,000 - [ ] £10,500 - [ ] £9,000 - [ ] £12,000 > **Explanation:** For the tax year 2016-17, the personal allowance in the UK was £11,000. ### What happens if an individual's income is exactly £11,000 for the tax year 2016-17? - [ ] They need to pay income tax on the full amount. - [ ] They need to pay income tax on half the amount. - [x] They do not need to pay any income tax. - [ ] They receive a taxable rebate. > **Explanation:** If the income is exactly £11,000, which matches the personal allowance, the individual will not pay any income tax. ### Were there any additional age-related allowances included in the personal allowance after April 2016? - [ ] Yes, they were progressively increased. - [x] No, they were removed. - [ ] Yes, but only for those aged over 75. - [ ] Yes, but only for those aged over 85. > **Explanation:** Additional age-related allowances were completely removed starting from April 2016. ### How is taxable income calculated for an individual resident in the UK? - [ ] Total income plus personal allowance. - [ ] Total income minus expenses. - [x] Total income minus personal allowance and other deductions. - [ ] Total income plus additional allowances. > **Explanation:** Taxable income is calculated by subtracting the personal allowance and any other deductions from the total income. ### What is the potential consequence if an individual’s income is well above £100,000? - [ ] They pay twice the income tax. - [x] Their personal allowance may reduce. - [ ] They receive a larger personal allowance. - [ ] They are exempt from income tax. > **Explanation:** If an individual's income exceeds £100,000, their personal allowance may start to reduce or taper off. ### Why is the personal allowance significant for taxpayers? - [ ] It adds more to their income. - [x] It reduces the taxable portion of their income. - [ ] It increases the total income tax payable. - [ ] It affects only non-residents. > **Explanation:** The personal allowance is significant as it reduces the taxable portion of an individual's income, hence reducing the amount of income tax payable. ### When were the age-related allowances for personal allowances frozen? - [ ] By April 2016 - [x] In the year 2013 - [ ] In the year 2010 - [ ] In the year 2015 > **Explanation:** The age-related allowances were frozen in 2013 and then completely eliminated by April 2016. ### What period of income does the personal allowance typically affect? - [x] A tax year - [ ] A calendar year - [ ] A fiscal quarter - [ ] A decade > **Explanation:** The personal allowance applies to a tax year, which runs from April to April in the UK. ### Can non-residents claim a personal allowance? - [ ] Yes, always. - [x] No, only under specific conditions and treaties. - [ ] Yes, without any conditions. - [ ] No, never. > **Explanation:** Non-residents can claim personal allowances only under specific conditions and according to tax treaties. ### Is the personal allowance the same for every individual? - [ ] Yes, it is always the same regardless of conditions. - [ ] No, it varies based on profession. - [x] It can vary based on income levels. - [ ] No, only students get different allowances. > **Explanation:** While the personal allowance is generally the same for most individuals, it can be reduced for those with very high incomes.