Income Tax
Income Tax Allowances
The single person's income tax allowance for the year 2011/2012 is £7,475 (2010/2011 - £6,475). If your total income is less than this during the tax year, you have no tax to pay.
If you are on an income of less than £7,475 (2011/2012), your bank or building society can provide you with Inland Revenue form R85 to apply for your interest to be paid gross.
For those over the age of 65, there are increased personal allowances available.
Tax and National Insurance rates 2011-12: Income tax personal allowances
| 2011 / 2012 | 2010 / 2011 | |
|---|---|---|
| Personal allowance1 | £7,475 | £6,475 |
| Personal allowance for people aged 65-741 | £9,940 | £9,490 |
| Personal allowance for people aged 75 and over1 | £10,090 | £9,640 |
| Married couple's allowance for people aged 75 and over2 | £7,295 | £6,965 |
| Income limit for age-related allowances3 | £24,000 | £22,900 |
1. The personal allowance is reduced by £1 for every £2 that an individual's adjusted net income exceeds £100,000.
2 .The married couple's allowance only applies where at least one of the partners (in a marriage or civil partnership) was born before 6 April 1935. The allowance is reduced where the claimant has income above the age income limit, down to a minimum level (in 2011-12) of £2,800. Tax relief on this allowance is given at a rate of 10%.
3. Age-related allowances are reduced by £1 for every £2 an individual's income exceeds the income limit, until the personal allowance for under 65's is reached.
Income tax bands 2011-2012
| Rate | 2011 / 2012 Band | 2010 / 2011 Band |
|---|---|---|
| Basic rate: 20% | £0 - £35,000 | £0 - £37,400 |
| Higher rate: 40% | £35,001 - £150,000 | £37,401 - £150,000 |
| Additional rate: 50% | Over £150,000 | Over £150,000 |
4. The table shows bands of earnings in excess of an individual's personal allowance.
5. The tax rate is only 10% on savings income where such income falls within the first £2,560 (in 2011-12) of taxable income.
The self-employed can claim business expenses against their income. So make sure you include all possible justifiable business expenses on your self-assessment form. This also applies to capital allowances for expenditure on plant and equipment, including computers and tools, for example, used for your business.
It is worth remembering you may be able to pay further contributions to your pension, which can utilise unused tax relief.
Since its introduction in 1990, Gift Aid allows taxpayers to receive tax relief on gifts made to qualifying charities.
One other point to remember is if one spouse is a tax payer and the other is not or pays tax at a lower rate it is worth considering switching certain investments to take advantage of their unused tax allowances.
Levels and bases of and reliefs from taxation are subject to change and their value depends on the individual circumstances of the investor.
The Financial Services Authority do not regulate tax planning.
For further information about the 2011 Budget changes please click here.