In the tax year 2017/18 the government will be introducing a new UK tax allowance for minor trading and property activity.
The allowance for each category is £1,000 and this means that individuals (who the government classes as self-starters) who have earnings under these two categories can earn up to the allowance and not pay tax on those earnings.
The allowances are also available to those people who earn more than £1,000 in each category, in which case those people will be able to earn the first £1,000 tax free.
The allowance is aimed at the entrepreneurial people in today’s society who aim to make some extra money on the side by doing things like renting out their driveway or selling goods on eBay.
But it is not just limited to these activities and could include for example people making and selling cakes in their spare time or those who make money buying and selling items at car boot sales. It could also cover people who rent out their garage or perhaps some land and those people who do some paid gardening or DIY work at weekends.
Anyone whose earnings are less than £1,000 a year in these categories will not need to fill in a tax return to declare any of this income but people earning over £1,000 will need to declare those earnings and deduct the £1,000 allowance from the income which would be taxable.
Another prime example would be people who use AirBnB to rent out rooms in their house (but not those who use the rent a room allowance to claim tax relief).
Both reliefs are available so if you have earnings in both categories you can claim up to £2,000 in these additional allowances.
The Chancellor of the Exchequer, Philip Hammond, today confirmed in his 2016 Autumn Statement that the personal allowance, which currently stands at £11,000 per annum for the tax year 2016/17, will be increased as per the announcements in previous budgets.
The personal allowance is the amount that an individual may earn before they have to start paying tax.
The increases that were previously announced mean that the personal allowance will be £11,500 starting from April 2017 for the tax year 2017/18 and will increase to £12,500 by the end of the current parliament.
Anyone who earns more than £11,500 currently (but less than £100,000) will benefit from the £500 increase in the personal allowance as follows:
Those who pay tax at the basic rate (currently 20%) will be £100 a year (around £8.33 a month) better off with the increase in the personal allowance.
Those who are subject to 40% tax will see £200 a year (£16.66 a month) more in their pay packets (plus any benefit they may gain from the increase in the 40% tax rate bracket).
There were rumours that the Chancellor may bring in the £12,500 personal allowance quicker than had previously been planned but this did not happen as it was confirmed this would likely be in the 2020s.
Once the personal allowance gets to £12,500 it will be increased in each year in line with inflation, unless any further increases are announced in subsequent budgets.
It was also announced that the Spring Budget will be the last budget at that time of year and that in 2017 the budget will move to being an autumn budget and there will be a subsequent spring statement, thus giving plenty of notice before any changes are introduced in the following April.
The Chancellor of the Exchequer, George Osborne, today announced in his March 2016 Budget an increase in the personal allowance for 2017/18 which for 2016/17 stands at £11,000.
The personal allowance for 2017/18 has been set at £11,500 which is an increase of 4.5% over the previous year. This increase is to keep in line with the plan that the Conservative Party announced in the election manifesto to increase the personal allowance by the end of their term to £12,500.
This single level personal allowance now applies to people of all ages, including those over 75, as the age allowance for pensioners has been removed so that everyone is entitled to the same personal allowance.
*Update* – this was increased in the 2016 Budget to £11,500
The UK personal allowance is the amount that you are allowed to earn before you are subject to tax. You can also add on to this the personal savings allowance and the dividend allowance that could be applicable to some of your earnings.
So if you are wondering what is the UK personal allowance for the tax year 2017/18 then the figure you are looking for is £11,200.
This is an increase of £200 on the personal allowance from 2016/17 – equivalent to 1.8%.
There were previously other lower figures announced for 2017/18 (which you can still find reference to on the HMRC website which can make it confusing), but when the personal allowance was increased to £11,000 for 2016/17 this was a jump higher than had previously been announced and so figures beyond 2017 also needed to be amended.
Of course there is a small chance that this could be changed in the 2016 budget but it looks unlikely at this stage.
With effect from April 2016 the government have introduced a personal savings allowance that means that the majority of people will not have to pay tax on their interest from savings.
This is a new allowance which is in addition to the £5,000 allowance for low earners that was introduced in 2015.
For those whose earnings are in the 20% tax bracket, there is a £1,000 savings interest allowance – so you can earn £1,000 in interest on your savings without paying any tax on that interest.
In order to have savings where some part of the interest is taxable it is likely that you would need to have over £50,000 in savings – and this is worked out on a 2% interest rate which may not always be achieved.
For those whose earnings put them in the higher rate tax bracket (i.e. those who earn over £43,000 but below £150,000) there is a reduced personal savings allowance of £500.
Anyone in the additional rate tax bracket will not be entitled to any personal savings allowance.
Because these new rules mean that 95% of people will no longer pay tax on their savings, the tax will no longer be deducted at source from savings interest as it has been in previous years. Therefore there is no need to notify your bank or building society to ask them not to take tax off your interest.
If you are wondering do children get a personal allowance then the short answer is yes, they do. Everyone in the UK is entitled to a personal allowance, letting them earn a certain amount of their income tax free.
The amount of the personal allowance for 2015/16 is £10,600 per annum for each person and the personal allowance for 2016/17 will increase to £11,000 for the tax year.
Although it is unlikely that many children will earn as much as the personal allowance, there are obviously exceptions to the rule so the personal allowance can be useful to everyone. Only certain types of income are subject to tax so watch out for those that are not taxed anyway such as income from certain National Savings accounts and Premium Bonds and income from Junior ISAs.
Unlike with married couples it is not possible to transfer any of the child’s personal allowance to the parent though.
Another question related to this subject is – do children have to pay tax? – and the answer to this one as well is yes. If they have earnings that exceed the personal allowance then yes they have to pay tax on those earnings just like anyone else might do. They would even be subject to higher rate tax if that was appropriate to their circumstances.
The personal allowances for 2017 have been announced and have been increased for all tranches of earnings from the allowance for zero tax to the 40% earnings threshold. This should mean a lower tax bill for most people although obviously it depends on whether earnings have increased in a similar manner.
The personal allowances for 2017 are as follows:
Personal allowance at zero rate tax – £11,200
Basic rate tax allowance – £32,400
Therefore the Higher rate tax threshold increases to – £43,600
The aim is to raise the higher rate tax threshold to £50,000 by the end of parliament and the personal allowance to £12,500 at the same point.
By 2017 we are referring to the tax year that runs from 6 April 2017 to 5 April 2018.
The basic rate of tax for 2017/18 is currently set at 20% (at time of publishing August 2015) and the higher rate tax is 40%. In addition there is an additional tax rate of 45% for earnings over £150,000.
In the first sole Conservative budget in 19 years, George Osborne has pledged to accelerate the increase in the personal allowance for 2016/17 from the previously announced figure of £10,800 to the new figure of £11,000.
The personal allowance 2016/17 is £11,000
The current personal allowance of £10,600 was due to increase to £10,800 in April 2016 but will now increase to £11,000 which was the proposed figure for 2017/18.
This all leads up to the plan for a personal allowance figure of £12,500 that the Conservatives plan to be in place by 2020. The government has continued to publicise it’s plan to increase the personal allowance so that those on lower wages do not have to pay any tax. However, of course, any increase in the personal allowance will also benefit those higher earners as they will have enough earnings to cover it. The only people who will not benefit in the increase in the personal allowance are those whose earnings are too high to be entitled to a personal allowance.
Each increase of £200 in the personal allowance should save people earning less than £100k pa, £40 a year in tax, or £3.33 a month, not a massive amount but every little helps if you are earning on the lower end of the scale.
In the Budget today George Osborne announced that the personal allowance would be increased to £11,000 a year with effect from the 2017/18 tax year. This will be preceded by another increase in the personal allowance to £10,800 for the tax year 2016/17.
There have been a number of increases in the personal allowance over the last few years and these increases come after the recent increase in the personal allowance for the year 2015/16 to £10,600.
The long question is: Can I transfer my personal allowance to my husband/wife/civil partner if I am not using it?
Well from April 2015 the answer is yes, you can transfer part of it. So, if you are earning less than the personal allowance in 2015/16 and your partner (i.e. wife/husband/civil partner) has earnings that are not taxed at any higher than the 20% rate, then you can transfer part of your personal allowance to them – currently the amount that you can transfer is £1,060.
This would mean that they would have a personal allowance of £11,660 instead of £10,600, reducing their tax bill by £212 for the year and your personal allowance would be £9,540. Therefore if you earn less than £9,540 a year then it is a no-brainer to transfer this allowance over to your partner.
However, your partner must not be in the higher rate tax bracket for the transfer to be allowed.
Also, HMRC have not yet declared how this transfer will take place although they have indicated that it will be via an online submission.
This may help families in particular where there is the traditional model of one parent staying at home to look after the children and the other working.
The standard level of income that you would need to earn to fall into the 40% tax bracket is £42,385. Of course this may be different in certain circumstances so you should take advice for your personal situation. So it is possible if you earn below this and your partner earns less than £9,540 then it is worthwhile for you to transfer over the portion of the personal allowance. OK so a gain of £212 a year is not massive but it’s certainly worth having.