Personal allowance

In this lesson

1. 0:00 Personal allowance explained
2. 0:17 Higher earners and allowance reduction
3. 0:33 Marriage allowance transfer rules
4. 2:26 Calculating reduced allowance over £100k
5. 4:00 Nil allowance threshold at £125,140

About this lesson

This video covers the core rules you need for tax computations: the standard £12,570 allowance, the £100,000 threshold where it starts reducing, and how to claim marriage allowance if both partners are basic rate taxpayers. Understanding personal allowance is essential for TX and ATX papers, as it forms the foundation of every income tax calculation and frequently appears in exam questions. The personal allowance is the amount of income you can earn tax-free each year, but it's not always straightforward. If your adjusted net income exceeds £100,000, HMRC reduces your allowance by £1 for every £2 over that threshold—and it disappears entirely once you reach £125,140. Adjusted net income is calculated by taking your net income and subtracting gross personal pension contributions and gift aid donations, so you need to identify these carefully in computations. There are two key reliefs to recognise. The marriage allowance lets you transfer up to £1,260 of unused allowance to a spouse or civil partner if you're both basic rate taxpayers—this saves a maximum of £252 per year and is claimed as a tax reducer, not a deduction from income. Claims can be backdated to April 2018. Remember that personal allowance can't create or increase a loss, can't be carried forward or back, and must be used in the year it applies or it's lost entirely.

Duration: 5m