Households can get up to £14,064 tax-free (Image: Getty)
The tax-free Personal Allowance has been frozen for years on end and it will be stuck at its same meagre £12,570 limit for at least another three years after the government extended it once more.
It’s been set at its current level since 2021 and will be frozen again until 2031. That means, because of ‘fiscal drag’, more and more people are going to end up paying more and more tax on their earnings, as wages increase due to inflation, and more people earn money that becomes subject to income tax, leading to higher tax bills for all of us.
The Personal Allowance is the amount of money you can earn before you start paying tax and it remains at £12,570, which it’s set to stay at until 2028 at the earliest. That means everything you earn above that is taxed at 20%, or 40% on earnings above £50,270 for a higher rate taxpayer and 45% on earnings above £125,000 for an additional rate taxpayer.
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Personal Allowance remains at £12,570 (Image: Getty)
But there is one way you can increase your tax-free Personal Allowance – but you have to be married or in a civil partnership.
Couples who are married or in a civil partnership can increase their tax-free take-home pay by £252 per year and backdate their claim for four more years, too.
This applies to up to four separate tax years if you backdate the claim. This means you could be looking at a tax rebate of up to £1,260. HMRC will then adjust your tax code to give you the money you’re owed, which when added to the standard Personal Allowance for the year (£12,570) comes out at £13,830 tax-free instead of £12,570, handing you the £1,260 for the four years’ worth of £252.
In order to be eligible, one partner must pay no income tax – so earn under £12,570. For example if one of the couple is no longer working, has lost their job or is taking a career break for childcare.
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The other must be a basic rate taxpayer earning between £12,570 and £50,270 (once pension contributions are deducted).
This process, called the Marriage Allowance, enables the lower-earning partner to transfer £1,260 of their Personal Allowance to their partner and reduce their tax bill by £252 for each year claimed (20% of £1,260).
For 2024-25 a slight change was made that also allows someone earning between £11,130 and £12,570 to transfer their Personal Allowance, although earnings inbetween those amounts are still liable for tax. It does still work out to a saving, just not as great as those earning less than £11,130.
You can only backdate your claim for the current year and the past four financial years, so 2020-21 will be too far back now, but you can claim for this current year and the past four back to 2021-22.