Tax rates, allowances and amounts Tax-free income and allowances

Some income is tax-free – for instance, interest from cash Isas and certain National Savings & Investments (NS&I) products. You don't have to tell Revenue & Customs about tax-free income. For more details, see Tax on savings and investments.

There are two types of allowances: 

• those that give full relief and allow you to earn a certain amount of money before paying tax, and 
• those that give restricted relief, which reduce your tax bill by a tenth of their nominal value.

Personal allowance 

Most people are allowed to receive a certain amount of income in a tax year before tax is payable. This is known as the basic personal allowance, and is classed as a 'full relief' allowance. In 2011-12 the basic personal allowance for people under 65 was £7,475. For 2012-13 it rises to £8,105. If you earn above £100,000 it is progressively withdrawn, at the rate of £1 for every £2 above £100,000 you earn. This means that if you earn £114,950 (2011-12) or £116,210 (2012-13) you receive no personal allowance and all your income is taxed.  

Personal allowances for older people

People aged 65 or over may get a higher amount, known as the age-related personal allowance.

Aged 65 to 74

For people aged 65 to 74, this could mean a personal allowance of £9,940 in 2011-12, or £10,500 in 2012-13.  

Aged 75 and over

People over 75 could get up to £10,090 in 2011-12, or £10,660 in 2012-13. However you are only entitled to the full amount of higher age-related allowance if your income during the 2011-12 tax year was £24,000 or less, or is £25,400 or less during 2012-13. 

Income above £24,000 (£25,400 in 2012-13) but below £100,000

If your income is above £24,000 (£25,400 in 2012-13), you'll lose the higher allowance at the rate of £1 for every £2 that your income exceeds £24,000 (£25,400 in 2012-13). 

Above a certain level of income, you lose any higher allowance and get just basic personal allowance. For those over 65 this will happen at £30,190 (2012-13) and for those over 75 at £30,510 (2012-13).

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.

Example

For example, a 65-year-old with a total income of £26,000 in 2012-13 (£600 over the limit) will therefore lose £300 from the higher allowance of £10,500, bringing it down to £10,200. For more details see Tax and allowances for older people.

Blind person's allowance

You may also be entitled to an additional allowance if you or your spouse or registered civil partner are blind or have severely impaired sight.

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 2011-12 this allowance was £1,980. In 2012-13 it rises to £2,100.

In England and Wales

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

If you have not been certified as blind and live in Scotland or Northern Ireland 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. 

Unused balance

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 couples get certain tax breaks

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 1937.

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.

For more on how being married,cohabiting or having a civil partner can affect your tax situation, see Tax and your partner.

Born before 1937

The married couple’s allowance  for 2011-12 for people born before 6 April 1936 is £7,295. For 2012-13 (for those born before 6 April 1937)  it is £7,705. So if you receive the full married couple's allowance of £7,295 in 2011- 12, £729.50 will be taken off your tax bill (£7,295 x 10%). In 2012-13 the deduction would be £770.50 (£7,705 x 10%).  

Income above £24,000

The amount of married couple's allowance you receive may be reduced if your income is more than £24,000 (above £25,400 in 2012-13). 

However if your income is above this limit, age-related personal allowance is reduced first, by £1 for every £2 'excess income', until it falls to the basic personal allowance of £7,475 (£8,105 in 2013-13). 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 'excess income', until you reach minimum married couple's allowance of £2,800 (£2,960 in 2012-13). 

For more details see Tax and allowances for older people.

Maintenance relief

You can claim this relief for certain maintenance payments you make if you or your ex-spouse or registered civil partner were born before 6 April 1937 and you 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 2011-12 the maintenance relief allowance is £2,800, so if you are eligible to claim you'll be able to deduct £280 or 10% of the amount you pay in maintenance, if that's lower. for 2012-13 it's £2,960, so you can deduct £296 or 10% if lower. 

More on this...

• Tax problem? See our guide to dispute, appeals and complaints
• Want to save on tax? We can show you 30 ways how to
• For any tax queries, call our experts on the Which? Money Helpline