Rafter Associates Financial Management Ltd
Rafter Associates Financial Management Ltd is a family run business which has been trading since 1981.Making the most of age allowances
The higher personal allowances for people aged 65 or over are valuable – but they can cause some complications.
If you are at least 65 years old (but under 75) by 5 April 2011 then for the current tax year (2010/11) you are entitled to a personal allowance of £9,490 instead of the basic personal allowance of £6,475. At the basic tax rate of 20% this could save you an extra £603 in tax.
If you are at least 75 years old by 5 April 2011 the allowance increases to £9,640, which is another £30 of potential tax saved. Married couples and civil partners where at least one partner is aged 75 or over at 6 April 2010 may also be entitled to the married couple’s allowance of £6,965. Unlike the personal allowance, this is given as a tax deduction. The tax deduction is 10% of the allowance. The married couple’s allowance is normally given initially to the husband (or in the case of a civil partnership, the partner with the higher income), but a transfer to the other spouse or partner is possible.
However, the higher personal allowances (and the married couple’s allowance) only retain their full value if your taxable income for 2010/11 does not exceed £22,900. Once your income exceeds this limit, allowances are withdrawn at the rate of £1 for every £2 of income above the limit. As a consequence, those with incomes of £28,930 or more in the case of the lower (65–74) allowance and £29,230 in the case of the 75+ allowance lose any of the additional age benefit. The position with the married couple’s allowance is a little more complicated, as the personal allowance is reduced first.
The personal allowances are not reduced below the basic amount (£6,475) unless your taxable income exceeds £100,000. Where this is the case, all taxpayers, whatever their age, lose £1 of the allowance for every £2 of income that exceeds £100,000, so that those with taxable incomes of £112,950 or more receive no personal allowance at all.
The basic personal allowance is to increase to £7,475 next year but no announcement has yet been made concerning age allowances.
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If you are at least 65 years old (but under 75) by 5 April 2011 then for the current tax year (2010/11) you are entitled to a personal allowance of £9,490 instead of the basic personal allowance of £6,475. At the basic tax rate of 20% this could save you an extra £603 in tax.
If you are at least 75 years old by 5 April 2011 the allowance increases to £9,640, which is another £30 of potential tax saved. Married couples and civil partners where at least one partner is aged 75 or over at 6 April 2010 may also be entitled to the married couple’s allowance of £6,965. Unlike the personal allowance, this is given as a tax deduction. The tax deduction is 10% of the allowance. The married couple’s allowance is normally given initially to the husband (or in the case of a civil partnership, the partner with the higher income), but a transfer to the other spouse or partner is possible.
However, the higher personal allowances (and the married couple’s allowance) only retain their full value if your taxable income for 2010/11 does not exceed £22,900. Once your income exceeds this limit, allowances are withdrawn at the rate of £1 for every £2 of income above the limit. As a consequence, those with incomes of £28,930 or more in the case of the lower (65–74) allowance and £29,230 in the case of the 75+ allowance lose any of the additional age benefit. The position with the married couple’s allowance is a little more complicated, as the personal allowance is reduced first.
The personal allowances are not reduced below the basic amount (£6,475) unless your taxable income exceeds £100,000. Where this is the case, all taxpayers, whatever their age, lose £1 of the allowance for every £2 of income that exceeds £100,000, so that those with taxable incomes of £112,950 or more receive no personal allowance at all.
The basic personal allowance is to increase to £7,475 next year but no announcement has yet been made concerning age allowances.
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