For Individuals

News: March 2011

For Individuals

Personal Allowances

These allowances represent the amount of an individual’s income in the tax year that is not subject to income tax. Some people are eligible for several allowances such as the personal allowance, and married couples allowance. The married couples allowance is available to married persons and civil partners, but only where at least one person of the couple was born before 6 April 1935.

The personal allowance for 2011/12 will increase by £1,000 to £7,475, but the 40% tax threshold will reduce to £35,000 (see below). This ensures that higher and additional rate taxpayers do not benefit from the increased personal allowance in this year. From 6 April 2012 the personal allowance will be increased again by £630 to £8,105, and in that year the 40% threshold will be reduced further to £34,370.

Personal allowances are withdrawn at certain income thresholds, indicated below, and cannot be claimed by non-domiciled individuals who elect to have their foreign income and gains taxed on the remittance basis for the tax year.

The 2011/12 personal allowances are…

  • Under 65 – £7,475
  • 65-74 – £9,940
  • 75 and over – £10,090
  • Minimum married couples allowance* – £2,800
  • Maximum married couples allowance* – £7,295
  • Blind person’s allowance – £1,980
  • Income limit for allowances for those aged 65 or more – £24,000
  • Income limit for allowances for those aged under 65 – £100,000

* given where one partner was born before 6/4/1935, and only as 10% reduction in tax.

Income Tax Rates

The tax rates for 2011/12 have been frozen at the 2010/11 levels but the threshold at which the 40% tax rate is applied is reduced to £35,000. This introduces a subtle tax increase as it pulls more taxpayers into the 40% tax bracket, and increases the amount of income subject to tax at 40%.

The 2011/12 rates and bands are…

  • Savings rate* (10%) – 0 to £2,560
  • Basic rate (20%) – 0 to £35,000
  • Higher rate (40%) – £35,001 to £150,000
  • Additional rate (50%) – over £150,000

* Only applies if non savings income is below this amount

Non-Domiciled and Non-Resident

Individuals who are domiciled outside of the UK (non-doms), and who have been resident in the UK for at least 7 years out of the previous 9 tax years, must pay a remittance basis charge if they want to exclude their off-shore income and gains from UK taxation. This remittance basis charge is currently set at £30,000 per year. It is proposed that from 6 April 2012 the remittance basis charge will increase to £50,000 for non-doms who have been UK resident for at least 12 years. Those who have been resident in the UK for at least 7 years but less than 12 years will continue to pay the £30,000 charge.

There is currently no clear measure by which an individual can determine whether they are treated as resident for tax purposes in the UK. The Government intends to introduce a legal test of residence with effect from April 2012.

Tax Credits

The main changes to Tax Credits as it applies to the self-employed, is the change in the income disregard from £25,000 in 2010/11 to £10,000 in 2011/12.

The income disregard provides a buffer for changes in income, so overpayments of tax credits do not arise where income varies within this threshold year on year. The reduction in this threshold is likely to adversely affect families with fluctuating incomes, such as the self-employed. In the future, in order to avoid a claw-back of tax credits, the claimant will need to finalise their self-employed profit figures as close to the tax year end as possible.