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How much can you earn before you pay tax?

How much can you earn before you pay tax?
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There are many situations in which you can earn a tax-free income. If you are wondering how much can you earn before you start paying tax, look no further.

We have put together a list of the different tax-free allowances you can access in the UK.

It is important to note that the amounts listed below can be subject to change by the UK government. These allowances are for the tax year 2020/2021.

Personal allowance

All UK residents can earn up to £12,500 tax-free. Any income above £12,500 will be subjected to income tax. This means that if you earn less than £12,500 a year, you won’t be liable for income tax.

Marriage allowance

You can transfer up to £1,250 of your personal allowance to your spouse or civil partner. This will increase their tax-free allowance to £13,750. But to be eligible for this allowance you will need to fulfil a number of criteria.

  • You have to be legally married or in a civil partnership. If you are just living together, you are not eligible.
  • One of you needs to be a non-taxpayer, or earning less than £12,500, while the other has to be a basic rate taxpayer. If you live in Scotland, the other partner has to be a starter, basic or intermediate rate taxpayer.
  • Both of you must have been born after 6 April 1935. 

It’s important to note that you cannot claim both marriage allowance and married couple’s allowance at the same time.

Blind person’s allowance

If you are eligible for this allowance, you can earn an additional £2,500 in tax-free income. This would bring your total allowance to £15,000.

If you live in England or Wales, you will need to be registered as blind or severely sight impaired (SSI) with your local authority. You can then claim the allowance.

If you live in Scotland or Northern Ireland, you can claim for the allowance if you have been certified as blind by an eye specialist or if you are so blind that you are unable to do any work for which eyesight is necessary.

As with marriage allowance, you can transfer your blind person’s allowance to your spouse or civil partner if you are a non-taxpayer and will not use the allowance.

You can transfer this allowance even if your partner is not blind. If your partner is blind, and they have their own blind person’s allowance, you can still transfer your allowance to them.

Income from an ISA

You are allowed to save up to £20,000 in a cash ISA or a stocks and shares ISA in the current tax year.

Any interest earned in a cash ISA is tax free. Any dividends earned or capital gains in a stocks and shares ISA are also tax free.

Pension lump sum

If you have a pension, the first 25% can be withdrawn as a tax-free lump sum when you reach 55.

This does not affect your personal allowance, so if you withdraw more than 25% as a lump sum you might be able to use your personal allowance, depending on any other income earned, in the same tax year.

Premium bond winnings

If you own premium bonds, any cash prizes won in a prize draw are tax free.

Take home

It is definitely worth checking your allowances to ensure you are not missing out on any income that you can earn before paying tax.

If you would like more information about how much can you earn before tax, check out the gov.uk website or Citizens Advice.

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