If you are over 65 and expecting to receive the higher rate of personal allowance due to your age, then you need to be aware that the increased personal allowance for those aged 65 and over (and indeed the even higher personal allowance for those aged 75 and over) can be reduced to the level of the basic personal allowance if your income is higher than a certain level. For the tax year 2011-12 this amount is £24,000 and for the year 2012-13 the amount is £25,400.

So, for every £2 that you earn over this limit, your personal allowance will be reduced by £1. So, let’s say you earn £26,000 – this puts you £2,000 over the income limit for the age related allowances so the allowance will be reduced by £1,000.

The age related allowance for 2011-12 is £9,490 so this will be reduced to £8,490. The allowance will not go below the basic personal allowance of £7,475 – unless your income is over £100,000.