Do I always have to pay tax on my income?
Tax-free allowances reduce the amount of tax you have to pay on income you receive.
There are two types:
Allowances - which mean you can earn a certain amount of money before paying tax
Tax relief - something you can claim to reduce your overall tax bill
In this guide, we explain the main tax allowances and thresholds - from the £11,850 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 2017-18 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 2018-19
|Tax rates and allowances|
|Tax-free personal allowance||£11,500 (unless income above £100,000, after which you lose personal allowance at £1 for every £2 earned)||£11,850 (unless income above £100,000, after which you lose personal allowance at £1 for every £2 earned)|
|Basic-rate taxpayer (20%)||£1-£33,500 (after allowances)||£1-£34,500 (after allowances)|
|Higher-rate taxpayer (40%)||Taxable income over £33,500||Taxable income over £34,500|
|Additional rate taxpayer (45%)||Taxable income over £150,000||Taxable income over £150,000|
|Married couple’s allowance (MCA) - born before 6 April 1935 only||£8,445||£8,695|
|Blind person's allowance||£2,320||£2,390|
|Capital gains tax (CGT) threshold||£11,300||£11,700|
|Inheritance tax threshold (IHT)||£325,000 + extra £100,000 if estate includes family home||£325,000 + extra £125,000 if estate includes family home|
Personal tax-free allowance 2018-19
Most people are allowed to receive a certain amount of income before having to pay income tax. This is known as the basic personal allowance.
In 2018-19, the basic personal allowance is £11,850, up from £11,500 in 2017-18.
Your personal tax allowance increases every year.
The personal allowance is the same for everyone, irrespective of your date of birth. However the personal allowance is reduced if you earn more than £100,000.
The higher-rate threshold, when people start paying 40% income tax, is £46,350 in England, Wales and Northern Ireland. The threshold for Scotland is £43,430.
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 £123,700 or more in 2018-19, you receive no personal allowance and all your income is taxed.
For 2017-18, this figure was £123,000.
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.
You can find out more in our guide marriage allowance explained - including what it is, how it works and who can benefit.
Alternatively, take our quiz to find out if you're eligible and where to find more information.
Personal savings allowance
You’re allowed to generate a certain amount of income from the interest on your savings each year.
- For basic-rate taxpayers, the interest on savings is tax-free up to £1,000 for 2018-19
- For higher-rate taxpayers, the interest on savings is tax-free up to £500 for 2018-19
This is unchanged from 2017-18.
Find out more about tax on your savings and how the personal savings allowance works.
The first £2,000 you receive in dividends from investments is also tax-free (known as your dividend allowance).
This is much less than the allowance for 2017-18, which was £5,000.
Find out more about dividend tax and allowances - how money you earn from shares is taxed.
Blind person's allowance
If you, or your spouse or registered civil partner, are blind or have severely impaired sight, your personal tax allowance is increased. If you are both eligible, you'll each get the allowance.
In 2018-19, the additional allowance is £2,390 - bringing your total personal tax allowance threshold to £14,240.
If you earn less than this threshold, you can transfer any unused blind person's allowance to your spouse or civil partner – this works in the same way as the marriage allowance.
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.
Trading and property allowance
If you earn money from trading activities - such as selling items on eBay or offering a small freelance service - you can make £1,000 tax-free. This is known as the 'trading allowance'.
In addition, if you make money from your property, you can also earn £1,000 before paying tax on the income.
This may be helpful if, for example, you rent out your garden for an event or let out a room for a week.
Both allowances can be claimed at once and apply from the 2017-2018 tax year onwards.
You can claim tax relief for spousal or child maintenance payments 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 (10% of £3,260).
To claim this relief, call HMRC on 0300 200 3300.