Allowance, personal

Updated: Aug 20, 2021

In calculating the amount of income tax payable in any fiscal year certain allowances, tending to alter from year to year, are given in respect of the taxpayer and his wife and family. A single person receives a ‘personal allowance”. which is a sum to be deducted from gross income. A married man receives a larger sum representing the allowance for himself and his wife jointly. This is not, however, twice the single person’s allowance and in certain circumstances married persons may elect to be assessed separately, i.e. as two single people; this would obviously be advantageous when both are in well-paid employment. If the marriage allowance is claimed, an additional sum called additional personal releif can be claimed on the wife’s earned income. This is usually equivalent to a single person’s relief but cannot be more than the amount of the wife’s actual earned income. The additional personal relief might at first appear to make a claim for separate assessment pointless, but where both parties are earning high salaries the apparent loss on the allowances may be more than compensated for by the fact that the actual tax charged on each income separately is in total far less than that on the combined incomes. This is because the rate charged increases with the income assessed. and by splitting the assessment, two portions of the combined income will fall into the lower rates.

Reference: The Penguin Business Dictionary, 3rd edt.

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