The following tax article looks at the personal allowance, that is your tax free allowance. We explore how personal allowances have changed over the past few decades and compares the higher rate threshold and personal allowances against inflation with a view to explaining how tax allowances have changed and been affected by economic flux.
The 2023 Personal Allowance is:
Your Tax Free Allowance is more commonly referred to as your Personal Allowance. The rate of Personal Allowance normally changes each year and is published by the Chancellor as part of the UK Budget. Nearly everyone who lives in the UK is entitled to an Income Tax Personal Allowance and the amount of personal allowance you receive is dependent on:
The graph below illustrates how the amount of personal allowance has changed. This graph is based on an individual earning 40k per year and includes PAYE tax payments only covering the 1999 tax year through to the 2014 yar year.
|Higher Rate Threshold||28,000||28,400||29400||29,900||30,500||31,400||32,400||33,300||34,600||34,800|
|Higher Rate Threshold||37,400||37,400||35,000||34,370||32,010||31,865||31,785||32,000||33,500||34,500||37,500|
A full list of Personal Income Tax Rates and Thresholds in the UK covering 1990 to 2023 can be accessed here and a full list of Personal Income Tax Rates and Thresholds in the Scotland covering 1990 to 2023 can be accessed here (Scottish Rate of Income Tax - SRIT was phased in from 2016), as we can see from the figures:
So, what does it all mean. iCalculator is apolitical, we have no interest in a political party and the figures above are not indicative of one party being better than another or having more of a vested interest in individual workers. We must remember that during the labour term we had a boom, t was easier to spend money and be flamboyant, the conservatives have had to balance austerity in their figures. So, forget the parties, this is what you need to understand about Personal Allowances and its relationship to the Higher Rate Tax threshold.
The rates of Personal Allowance, The Higher Rate Tax Threshold are not married to The Annual Inflation Rate (AIR). Let's look at what the figures would look like from 2009 onwards in they were.
The Graph below illustrates how Personal Allowance and the Higher Rate Tax threshold would look if they were linked to the annual Inflation Rate.
|Annual Inflation Rate (%)||1.3||0.8||1.2||1.3||1.4||1.3||2||2.3||2.3||3.6|
|PA if at AIR||4,391||4,426||4,479||4,537||4,601||4,661||4,754||4,863||4,975||5,154|
|HR if at AIR||28,364||28,590||28,934||29,310||29,720||30,106||30,708||31,415||32,137||33,294|
|2009||2010||2011||2012||2013||2014||2015||2016||2017||Annual Inflation Rate (%)||2.2||3.3||4.5||2.8||2.5||1.5||0||0.7||-|
|PA if at AIR||5,268||5,442||5,686||5,846||5,992||6,082||6,082||6,124||-|
|HR if at AIR||34,027||35,150||36,731||37,760||38,704||39,284||39,284||39,560||-|
PA = Personal Allowance || HR = Higher Rate Tax Threshold || AIR = Annual Inflation Rate
By linking to the annual Inflation Rate our example worker on 40k a year would have paid more tax during the 'good times' and less tax now during periods of austerity. There are many good arguments for 'paying your way' during the good times to make the tough times easier to manage. Clearly this is just a snapshot and there are also good arguments for manually setting Personal Allowance and the Upper Tax Threshold but we trust this provides food for thought.
If you found the comparative affect of inflation interesting you may wish to use our inflation calculator which allows you to calculate the comparative historical salary to your current earnings.
In summary, your Personal Allowance (Tax Free Allowance) is the amount of income you can receive each year without having to pay tax on it. Depending on your circumstances, you may also be able to claim certain other allowances. The amount of Tax Free Allowance varies between individuals and is based on specific circumstance and criteria such as Age and the Total Income (Gross Pay, money from savings and Pensions etc. before Tax has been deducted) for the Tax Year.