Tax rates and allowances
Tax-free income and allowances
By Ian Robinson
Article 3 of 11
Tax-free income and allowances
Discover how much you can earn before being taxed, and the different types of allowances and reliefs you may be able to claim.
Tax-free allowances reduce the amount of tax you have to pay on income you receive.
There are two types:
- allowances that allow you to earn a certain amount of money before paying tax
- tax relief that you can claim that reduces your overall tax bill
In this guide, we explain the main tax allowances and thresholds you could benefit from - from the £11,500 you can earn tax-free, to the tax-free dividend allowance if you hold shares or funds.
And you can get a head start on your 2016-17 tax return with the Which? tax calculator. Tot up your tax bill, get tips on where to save and submit your return direct to HMRC with Which?.
Tax thresholds and allowances you need to know
|Tax rates and allowances|
|Basic-rate taxpayer (20%)||£0-£32,000 (after allowances)||£0-£33,500 (after allowances)|
|Higher-rate taxpayer (40%)||Taxable income over £32,000||Taxable income over £33,500|
|Additional rate taxpayer (45%)||Taxable income over £150,000||Taxable income over £150,000|
|Tax-free personal allowance||£11,000 (unless income above £100,000, after which you lose personal allowance at £1 for every £2 earned)||£11,500 (unless income above £100,000, after which you lose personal allowance at £1 for every £2 earned)|
|Married couple’s allowance (MCA) - born before 6 April 1935 only||£8,355||£8,445|
|Blind person's allowance||£2,290||£2,320|
|Capital gains tax (CGT) threshold||£11,100||£11,300|
|Inheritance tax threshold (IHT)||£325,000||£325,000 + extra £100,000 if estate includes family home|
Personal tax-free allowance 2018-19
Most people are allowed to receive a certain amount of income before tax is payable. This is known as the basic personal allowance.
Your personal tax allowance increases every year.
In 2018-19, the basic personal allowance will be £11,850, up from the current £11,500.
The personal allowance is the same for everyone irrespective of your date of birth. However the personal allowance is reduced if you earn over £100,000.
The higher-rate threshold, at which point people start paying 40% income tax, will rise to £46,350 in England, Wales and Northern Ireland. The threshold for Scotland will be set in December 2017.
Income above £100,000
If your income is above £100,000, basic personal allowance is reduced by £1 for each £2 you earn over the £100,000 limit, irrespective of age.
This means that if you earn £123,000 or more in 2017-18, you receive no personal allowance and all your income is taxed.
For 2016-17, this figure was £122,000.
Marriage allowance 2017/18
If you're married or in a civil partnership, you may be entitled to tax benefits. How much you can get depends on when you and your partner were born, and how much you earn.
Take our quiz to find out if you're eligible and where to find more information.
Personal savings allowance and dividends allowance
From April 2016, a new system incorporating a personal savings allowance applies.
- For basic-rate taxpayers, the interest on savings is tax-free up to £1000 for 2017-18
- For higher-rate taxpayers, the interest on savings is tax-free up to £500 for 2017-18
Find out more about tax on your savings.
The first £5,000 you receive in dividends from investments is also tax-free (known as your dividend allowance).
Find out more about dividend tax and allowances.
Maintenance payments 2017/18
You can claim maintenance payments relief if the following applies:
- you or your partner were born before 6 April 1935
- you're paying maintenance under a court order after the relationship ended
- the payments are for the maintenance of your ex-spouse or former civil partner (provided they aren't now remarried or in a new civil partnership) or for your children who are under 21
Maintenance payments relief works in a similar way to the married couple's allowance. The amount of maintenance you get is worth 10% of the maintenance you pay to your ex-partner, up to a maximum of £326 is 2017-18 (10% of £3,260).
Blind person's allowance 2017/18
If you or your spouse or registered civil partner are blind or have severely impaired sight, your personal tax allowance (the amount of income you can receive before you start to pay tax) is increased. If you are both eligible, you'll each get the allowance.
In 2017-18, the allowance is £2,320. If you don't earn enough for the allowance to reach your personal tax allowance threshold (£11,500 in 2017-18) you can transfer the allowance to your spouse or civil partner.
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.
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.
- Last updated: November 2017
- Updated by: Tom Wilson