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  • Paul Clifton

Keep your full personal allowance

The basic personal allowance is reduced where a person has ‘net adjusted income’ in excess of £100,000. The personal allowance (£11,000 for 2015/16) is reduced by £1 for every £2 by which this limit is exceeded until the allowance is fully abated.

This means that anyone with income of more than £120,000 loses all their personal allowance. However, it is possible to preserve entitlement to the personal allowance by reducing income to below £100,000. There are various ways in which this can be achieved, for example by transferring income producing assets to a spouse or civil partner where his or her income is below the £100,000 abatement limit

Likewise, adjusted net income can be reduced by making pension contributions, which is in itself beneficial due to the higher rate relief that they receive on contributions up to the available annual allowance. Charitable donations would also work

Keeping The Full Personal Allowance

Bob has adjusted net income of £130,000 for 2015/16, of which £30,000 is in the form of interest from investments. His wife has income of £10,000 for the year.

As Bob has income in excess of £120,000, he will lose the personal allowance for 2016/16. By transferring the investments to his wife, his income is reduced to £90,000 and he retains the personal allowance.

For a higher rate taxpayer paying tax at 40% the personal allowance is worth £4,000 for 2015/16 (£10,000 @ £40%). By transferring income to his wife Bob retains the personal allowance, saving £4,000. As the income transferred to his wife is taxed at 20% rather than at 40%, the couple save a further £6,000 in tax.

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