ACCA TX ^UK Syllabus B. Income Tax And Nic Liabilities - Personal allowance - Notes ^{1 / 6}

Personal allowance

is an amount on which income tax will not be charged. 

If an individual makes income above this allowance amount, then income tax will be charged on that additional income and the relevant rates.

Calculation of the personal allowance

For the tax year 2024/25 the personal allowance is £12,570 but it is reduced if the taxpayer has adjusted net income for the year in excess of £100,000..

If the adjusted net income exceeds £100,000 then the personal allowance is reduced by ½ of the excess of £100,000.

Therefore, the personal allowance is reduced to Nil if the adjusted net income is £125,140. (£125,140-£100,000)/2 = £12,570.

How to calculate Net income and Adjusted net income?

Net income = Total income – qualifying interest payments – trading loss reliefs.

• Adjusted net income = Net income – gross personal pension contributions - gross gift aid contributions.

How does this all look?

Illustration:

Bubble has net income of £103,150 and has a gross personal pension contribution of £2,000.

• How much personal allowance will she be entitled to?

• What is her taxable income?

Solution:

Adjusted net income = £103,150 - £2,000 = £101,150

Personal allowance reduction

£101,150 - £100,000 = £1,150 / 2 = £575

• £12,570

  (£575)

  £11,995 is the personal allowance available to Bubble