Odd happenings with the personal allowance

News: January 2013

Odd happenings with the personal allowance

  • 2012/13 – £8,105
  • 2013/14 – £9,440 (not £9,205 as originally planned)

To make sure that 40% taxpayers do not fully benefit from the charge to the Promised Land of a £10,000 personal allowance, the level of taxable income at which that rate starts is being restricted to £32,010 of taxable income in 2013/14, increasing by 1% per annum in 2014/15 and 2015/16.

There is a tax trap by reference to the gradual withdrawal of the personal allowance if your taxable income exceeds £100,000. This is via a reduction of £1 of allowance for every £2 of excess taxable income. For 2012/13, the trap exists if you have taxable income between £100,000 and £116,210. This makes you a 40% taxpayer, but on income within that band you effectively pay tax at 60%.

This is unacceptable; in fact, the trap widens in 2013/14 where it applies to taxable income between £100,000 and £118,880. If this trap is likely to affect you, we are able to advise on several possible ways of avoiding it.

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