Personal Allowance for High Earners

Before 6 April 201, everyone was entitled to the personal allowance so that they could earn the first tranche of their pay tax free. However for the tax year 2010-11, a cap was introduced for the tax free personal allowance that meant that people earning over £100,000 a year would either receive a reduced personal allowance or no personal allowance at all.

To summarise, the personal allowance was reduced by £1 for every £2 of income over £100,000. So, for 2010-11, the personal allowance was £6,475. This meant that for anyone earning £112,950 or more, they would not be entitled to any tax free personal allowance. For earnings between £100,000 and £112,950, a reduced tax free allowance would apply.

In 2011-12 the personal allowance amounted to £7,475 and so anyone earning over £114,950 would not be entitled to any tax free personal allowance. The threshold for the earnings has not increased and will not increase from the level of £100,000 which was set in 2010 so it is likely more and more people will be caught out with not getting a personal allowance for tax free earnings.

The personal allowance increases to £8,105 for 2012-13 so the maximum earnings does in effect get higher but as the threshold does not increase this may negate the effect of the personal allowance increase.

Leave a Reply

Your email address will not be published. Required fields are marked *