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Additional Personal Allowance Definition & Meaning

Updated: November 23, 2022

There may be tax breaks available to you that will lower the amount of income tax you must pay.

Some reduce the amount of your taxable income, while others, such as the married couple’s allowance and the marriage allowance, offer a tax credit that can lower your overall tax burden.

Read on as we take you through the ins and outs of the additional personal allowance. We’ll take a look at what it is, how it works, why it was abolished, and provide you with an example.

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    KEY TAKEAWAYS

    • On income tax returns submitted in the UK, HM Revenue and Customs allowed an additional deduction known as the additional personal allowance.
    • Those who qualified, including single, separated, or widowed taxpayers who did not use the married couple allowance, received tax relief through this allowance.
    • Those who met the requirements had to be responsible for supporting a child under the age of 16.
    • In 2000, the extra personal allowance was dropped.

    What Is the Additional Personal Allowance?

    The term additional personal allowance refers to a further tax deduction allowed on income tax returns in the UK by HM Revenue and Customs (HMRC). The married pair allowance was not available to unmarried, separated, or widowed people who were also providing financial assistance for a child under the age of 16. In 2000, the extra personal allowance was eliminated.

    Less Taxin'. More Relaxin'

    How Did the Additional Personal Allowance Work?

    In the UK, HM Revenue and Customs are where income taxes are reported and collected. This organization is the Internal Revenue Service of the United Kingdom (IRS). Income tax is levied on a variety of sources of income for British taxpayers, including salaries from employment, profits from self-employment, state benefits, pension earnings, rental and trust income, and any benefits received from an employer. Several types of income are free from taxes, including:

    • The initial £1000 in self-employment income
    • The first £1,000 of rental property income
    • Lottery winnings from the national draw
    • A few dividends

    Why Did the Additional Personal Allowance Get Abolished?

    The personal allowance will grow starting with the tax year beginning in April 2021 and remain unchanged until 2026, according to a statement made in the budget by the chancellor at the time, Rishi Sunak. As a result, the allowance will remain unchanged for the following six years after increasing in April 2021.

    The personal allowance is the amount above which you are exempt from paying income tax. The personal allowance for the 2020–2021 tax year was £12,500. If an individual earned more than £12, 500, they would all be subject to income tax. The basic tax rate level for individuals earning more than £12,500 but less than £50,000 was 20%.

    Ahead Of Tax Time Every Time

    Additional Personal Allowance Example

    Here’s a hypothetical illustration of how the extra personal allowance functioned.
    Imagine a man who, in 1998, lost his wife and had a 12-year-old child living with him. The man was qualified to make a claim for an additional personal allowance under British tax law. Even though his wife had passed away two years before, he was no longer married at the time. The individual was able to pay less in income taxes for the year because of this extra compensation.

    Summary

    A personal allowance lowers a person’s tax obligation. It is the portion of income that is not taxed, similar to the standard deduction in the United States. Anything beyond the personal allowance, or what remains after the personal allowance has been taken into account, is subject to taxation at the applicable rate.

    An extra personal allowance could be claimed by some taxpayers in order to lower their tax liability. Until April 2000, this benefit was available. As long as they didn’t request the allowance for married couples, single people, as well as those who were separated or bereaved, might use it.

    Turn Tax Pains Into Tax Gains

    FAQS on Additional Personal Allowance

    Who Can Claim Personal Allowance?

    If you have a British passport, you will receive a Personal Allowance of tax-free UK income each year. You may also be eligible if you have ever worked for the UK government during that tax year or if you are a citizen of an EEA nation.

    How Many Allowances Should I Claim?

    You can give your husband, wife, or civil partner £1,260 of your personal allowance under the Marriage Allowance program. As a result, they pay up to £252 less in taxes for the tax year.

    How Do I Avoid Losing My Personal Allowance?

    Making a pension contribution to lower your income below the level at which you begin to lose your personal allowance is a recognized way to regain it.

    Are Allowances the Same as Dependents?

    In essence, your employer determines how much to deduct from your pay using an allowance, and you determine your real tax burden using a dependent exemption on your tax return.

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