Low Incomes Tax Reform Group
The personal allowance is different depending on your age
One part of tax law that reduces the amount of tax you pay is the personal allowance.
Personal allowances come in a number of shapes and sizes but the main allowances for those under 65 are the personal allowance and the blind person's allowance.
The personal allowance is an amount which reduces the level of income you pay tax on. It is announced towards the end of each year in the chancellor's pre-Budget report.
Another way of looking at it is to say that you get a certain amount of your taxable income tax-free each year. Tax years run from 6 April to 5 April; so the tax year 2009/10 ends on 5 April 2010.
You will get a personal allowance no matter what your level of income and whatever your age.
Nearly everyone who lives in the UK gets a personal allowance, as do some people from other countries who are living here, and additionally most UK nationals living abroad.
PERSONAL ALLOWANCE EXAMPLE
Sam is aged 45, is earning £12,500 for 2009/10, and has no other income
His personal allowance is £6,475
Subtract the £6,475 from the £12,500 and so the income Sam pays tax on is £6,025
The personal allowance is £6,475 for 2009/10 for those under 65 throughout that year.
For those taxed under Pay As You Earn (PAYE), generally, the personal allowance is spread throughout the year. A self-employed person gets allowances through their self-assessment tax return when the tax bill for the year is worked out.
The allowance is increased for those who are 65 and over at any point in the tax year, depending on their age and income level.
For those aged between 65 and 74 the allowance is £9,490 for 2009/10, rising to £9,640 for someone aged 75 or over.
But you can only keep all of the higher personal allowance if your income is below set levels. Anyone aged between 65 and 74 with a taxable income for 2009/10 of over £28,930, or anyone aged 75 or over with a taxable income of over £29,230 will have the basic personal allowance that everyone gets of £6,475.
Blind Person's Allowance
Blind Person's Allowance (BPA) is an allowance of £1,890 for 2009/10. It reduces the amount of taxable income that you will pay tax on, and is given in addition to the personal allowance.
Unlike the personal allowance you have to make a claim for it, but you do not have to be entirely without sight to claim the BPA.
You can claim if you are registered as blind with a local authority in England and Wales. For those living in Scotland or Northern Ireland, your sight must be so bad to stop you performing any work for which eyesight is essential.
If in the previous tax year you obtained evidence of blindness on which the registration will be eventually made, but you only registered the following tax year, you can claim the relief for both years.
If both you and your husband or wife or civil partner are entitled to BPA you can each claim independently.
You can transfer any surplus BPA to your husband or wife or civil partner to reduce his or her tax. If you are a non-taxpayer and your married or civil partner pays tax you can still transfer your BPA to them.
Allowances for pensioners
Married couple's allowance (MCA) is available to married couples and civil partners if at least one of the couple was born before 6 April 1935.
The allowance is set annually and is different from a personal allowance as it does not reduce your taxable income, but is used to calculate an amount to come off your tax bill.
Your tax bill is reduced by 10% of the MCA to which you are entitled. For 2009/10, the allowance for those aged 75 or over is £6,965, so £696.50 is the maximum that can be deducted from your tax.
Just like the personal allowance, the allowance does depend on the level of your taxable income and your age but as a rough guide as long as this is below £31,000 you should get the full amount.
If you are a married couple who qualified for the allowance before 5 December 2005, the MCA is given to the husband.
For married or civil partner couples who first qualified for MCA on or after 5 December 2005, it is given to the partner with the higher income.
It is also possible for a couple married before 5 December 2005 to elect for these post-December 2005 rules to apply to them. They will need to contact their tax office to do this.
For 2009/10, a married woman or lower earning spouse or civil partner can choose to have up to £1,335 of the MCA themselves - £133.50 off his or her tax - and can have £2,670 - worth £267 off their tax - if both husband and wife or civil partners agree. The balance is used to reduce the husband's or higher earner's tax bill.
You should make a claim on form 18 which you can download from the HMRC website or which you can obtain from any tax office. It applies from the start of the tax year following the claim until you withdraw your claim.
MCA is due for each tax year that you are living together as husband and wife, or civil partners, and is also given in full in the year of separation, divorce or the death of either spouse or civil partner.
Example of MCA
Ryan aged 80 died during 2009/10
His taxable income before allowances was £11,000 and the tax he was due to pay for the year amounted to £272
His MCA was worth £696.50 so the balance of £424.50 is available for his widow to use against her tax bill
If you are unable to use your full MCA in any tax year you can ask for the balance to be transferred to your wife or civil partner. The request is made on a form 575 which you can download from the HMRC website or which you can obtain from your tax office.
Maintenance payments relief is available if you separate or divorce and either your former spouse or civil partner or you were born before 6 April 1935. A husband or wife or civil partner making maintenance payments by court order is entitled to claim a reduction to their tax bill.
The payments must be made to the ex-spouse or ex-civil partner. Payments to or for the benefit of children do not qualify.
The relief is 10% of £2,670 (£267) or 10% of the amount paid, whichever is the lower figure.
The opinions expressed are those of the author and are not held by the BBC unless specifically stated. The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.