- First Choice Accountancy
Understanding Personal Allowance in 2022
Which part of your Income is Tax Free?
The amount of income tax you pay depends on a variety of factors, including how much is above your personal allowance and how much falls within each tax band.
Tax- Free Income
You are able to earn £12,570 as the standard personal allowance, so any money you earn over this amount is what you will be taxed on.
However, if you claim Marriage Allowance or Blind Person's Allowance, your personal allowance will be bigger. Should your income be over £100,000, though, it will be smaller.
Income Tax Rates
As noted, the personal allowance- and the amount you won't pay tax on is £12,570. Then the basic tax rate of 20% is applied to any money earned between £12,570 and £50,270.
The higher rate of tax which is 40%, comes into effect for earnings between £50,271 and £150,000. Finally, any income over £150,000 will be hit with an additional rate of tax, which is set at 45%.
If you are earning over £125,140 in the United Kingdom, you will not get a personal allowance on your taxable income.
There is also the chance to get some tax-free allowances on some other things, such as savings interest and dividends, should you own any shares in a company. In addition, you could also get a tax free allowance for your first £1,000 of income brought in from self-employment, which is referred to as your 'trading allowance', as well as the first £1,000 you make from property you rent, although this is not the case if you are using the Rent a Room scheme.
Any interest, dividends or income over your allowances will be subject to tax.
Richardson, D., 2022. Five tax changes you need to know about in 2022 – Which?. [online] Which? News. Available at: <https://www.which.co.uk/news/2022/01/five-tax-changes-you-need-to-know-about-in-2022/> (Accessed 31 January 2022).