Income Tax Allowances

PLEASE NOTE: the figures shown below only apply to England, Northern Ireland and Wales. Scottish taxpayers have different rates and bands. For more details, visit https://www.gov.scot/publications/scottish-income-tax-2020-2021.

The income tax Personal Allowance for the year 2020/2021 is £12,500 (2019/2020 - £12,500). If your total income is less than this during the tax year, you have no tax to pay.

Tax rates 2020-21: Income Tax Personal Allowances

	2020 / 2021	2019 / 2020
Personal Allowance(1)	£12,500	£12,500
Income limit for Personal Allowance(1)	£100,000	£100,000
Income limit for married couple's allowance(2)	£30,200	£29,600
Maximum amount of Married Couple's allowance for people born before 6 April 1935(3)	£9,075	£8,915
Minimum amount of Married Couple's allowance for people born before 6 April 1935(4)	£3,510	£3,450
Blind Person's allowance	£2,500	£2,450
Transferable Tax Allowance for married couples and civil partners(5)	£1,250	£1,250
Dividend Allowance(6)	£2,000	£2,000
Personal Savings allowance for basic rate taxpayers(7)	£1,000	£1,000
Personal Savings allowance for higher rate taxpayers(7)	£500	£500

(1). This allowance is subject to the £100,000 income limit. The individual’s personal allowance is reduced where their income is above this limit. The allowance is reduced by £1 for every £2 above the limit.

(2). This age-related allowance is reduced by £1 for every £2 of income above this limit

(3). This allowance is subject to the £30,200 income limit. The individual’s married couple’s allowance is reduced by £1 for every £2 above the limit. That reduction only applies after any reduction to their personal allowance (see note 1). The individual’s married couple’s allowance is never reduced below the minimum amount. Tax relief for the Married Couple's Allowance is given at the rate of 10%.

(4). This is also the maximum relief for maintenance payments where at least one of the parties is born before 6 April 1935.

(5). This transferable allowance is available to married couples and civil partners who are not in receipt of married couple’s allowance. A spouse or civil partner who is not liable to income tax; or not liable at the higher or additional rate, can transfer this amount of their personal allowance to their spouse or civil partner. The recipient must not be liable to income tax at the higher or additional rate. The recipient is eligible to a tax reduction of 20% of the transferred amount.

(6). Individuals will not have to pay tax on the first £2,000 of dividend income they receive.

(7). Basic rate taxpayers will not have to pay tax on the first £1,000 of savings income they receive and higher rate taxpayers will not have tax to pay on their first £500 of savings income.

Income tax bands and rates 2020-2021

	2020 / 2021	2019 / 2020
Starting rate limit for savings(8)	£0 - £5,000	£0 - £5,000
Starting rate for savings income(8)	0%	0%
Basic rate band	£1 - £37,500	£1 - £37,500
Basic rate	20%	20%
Higher rate band	£37,501 - £150,000	£37,501 - £150,000
Higher rate	40%	40%
Additional rate band	Over £150,000	Over £150,000
Additional rate	45%	45%

(8). If, after deducting your Personal Allowance from your total income liable to Income Tax, your non-savings income is above the starting rate limit then the starting rate for savings will not apply. Non-savings income includes income from employment, profits from self-employment, pensions, income from property and taxable benefits.

The rates available for dividends are the 7.5 per cent ordinary rate, the 32.5 per cent dividend upper rate and the dividend additional rate of 38.1 per cent.

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.

For further information about the 2020 Budget changes please click here.