The tax free Personal Allowance has been frozen for years on end and unless there’s an unexpected u-turn from the government, is set to remain stuck at its current levels for at least another four years, until 2028.
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 to counter inflation and more people earn money that’s liable to income tax.
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 percent, or 40 percent for a higher and 45 percent for an additional rate taxpayer.
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.
This applies to up to four separate tax years if you backdate the claim. This means you could be looking at a tax rebate up to £1,242, which when added to the standard Personal Allowance for the year comes out at £14,064 tax-free instead of £12,570.
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.
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.
