The personal allowance for 2021/22 is set at £12,570. It is reduced by £1 for every £2 by which adjusted net income exceeds £100,000. This means that individuals whose income exceeds £125,140 will not receive a personal allowance for 2021/22.
Where possible, steps can be taken to preserve the personal allowance, such as making pension contributions or charitable donations to take income to below the abatement limit. Consideration can also be given to deferring income to 2022/23 and to transferring income or income-earnings asset to a spouse or civil partner to preserve the allowance.
Where the personal allowance has not been fully utilised, consider whether it is possible to increase income for 2021/22. If you have a family company, you may be able to pay a bonus or a dividend, for example, to mop up unused allowances.
If you, or your spouse or civil partner, are unable to use their full allowance for 2021/22, consider whether you can claim the marriage allowance. This allows one spouse or civil partner to transfer 10% of their personal allowance – equivalent to £1,260 for 2021/22 – to their partner, as long as the recipient does not pay tax at the higher or additional rate. Where the marriage allowance is claimed, the partner making the transfer has a reduced personal allowance of £11,310 for this year, whereas the recipient has a higher personal allowance of £13,830. Claiming the marriage allowance will save a couple £252 in tax for 2021/22.
The married couple’s allowance is set at £9,125 for 2021/22. It is available where at least one spouse or civil partner was born before 6 April 1935. However, the allowance is reduced by £1 for every £2 of income over £30,400 until the allowance is reduced to the minimum amount of £3,530. The married couple’s allowance reduces the tax payable by 10% of the allowance, meaning it is worth between £353 and £912.50 for 2021/22. If one partner’s income exceeds the income limit, couples should look to equalise income where possible to minimise the reduction in the allowance.
Contact us to discuss action you can take to ensure that your personal allowances for 2021/22 are not wasted.