Personal Allowance

Personal allowance. Each of us (including children) has a personal allowance set by the taxman. It is the amount of money we can earn each year before we become liable to pay income tax.

The size of your personal allowance may vary according to your circumstances. The exact size of the allowance is usually increased annually by the Chancellor in the budget to take account of inflation (this is called 'indexation of allowances' in the language of the Treasury.)

In fact, there is a standing commitment to increase personal allowances by the rate of inflation. This was established in 1977 when two Labour backbench MPs, Jeff Rooker and Audrey Wise, put forward an amendment to the Finance Bill index-linking the main tax allowance each year, unless Parliament explicitly votes not to do so.

If the Chancellor is being more than usually generous he may raise the allowance by significantly more than the rate of inflation.

See our tax tables Looking to save tax - see our guide to saving personal tax.

Last Updated: February 2008 © Moneyextra.com

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