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PERSONAL TAX
The personal allowance
The personal allowance is currently £12,570. The Chancellor announced in the March 2021 Budget that the personal allowance will be frozen at £12,570 for the tax years 2022/23 to 2025/26.
There is a reduction in the personal allowance for those with ‘adjusted net income’ over £100,000. The reduction is £1 for every £2 of income above £100,000. So there is no personal allowance where adjusted net income exceeds £125,140.
The marriage allowance
The marriage allowance permits certain couples, where neither party pays tax in the tax year at a rate other than the basic rate, to transfer £1,260 of their personal allowance to their spouse or civil partner.
Comment
The marriage allowance reduces the recipient’s tax bill by up to approximately £250 a year. To benefit from the marriage allowance one spouse or civil partner must normally have no income or income below the personal allowance for the year. The marriage allowance was first introduced for 2015/16 and there are couples who are entitled
to claim but have not yet done so. It is possible
to claim for all years back to 2017/18 where the entitlement conditions are met. The total tax saving for all years up until 2021/22 could be over £1,000. A claim for 2017/18 will need to be made by 5 April 2022.
Tax bands and rates
The basic rate of tax is 20%. In 2021/22 the band
of income taxable at this rate is £37,700 so that the threshold at which the 40% band applies is £50,270 for those who are entitled to the full personal allowance.
At Spring Budget 2021, the Chancellor announced that the basic rate band will be frozen at £37,700 for the tax years 2022/23 to 2025/26. The National Insurance contributions Upper Earnings Limit and Upper Profits Limit will remain aligned to the higher rate threshold at £50,270 for these years.
Individuals pay tax at 45% on their income over £150,000.
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Personal Tax