The full tax allowances are:

• the personal allowance
• the blind person's allowance

Your tax allowance does not include the married couple’s allowance - which only some people in married couples or civil partnerships can get - which works in a different way and is explained later.

The full tax allowances represent the amount of income you can have before you pay any tax.

Table 1: Full tax allowances 2008-09

	Allowance
Personal allowance
Age at 5 April 2008
Under 65	£5,435
65 to 74	£9,030*
75 or older	£9,180*
Blind person's allowance	£1,800
* These allowances may be reduced if total income in the tax year exceeds £21,800. They will never fall below £5,435.

Personal allowance

The personal allowance is available to men and women, married or single. The personal allowance depends on your age. It is £5,435 if you are under 65, £9,030 if you are aged 65–74 and £9,180 if you are aged 75 or more.

These higher age-related allowances are for people who reach the relevant age at any time in the tax year. So even if your 65th or 75th birthday is on 5 April 2009, you still get that age-related allowance for the whole 2008–09 tax year.

Age-related allowances are not always applied automatically – particularly in the year you become entitled to them – so it is worth checking you are getting what you are entitled to.

Higher incomes

If your income in 2008–09 is above £21,800, you will lose some or all of your age-related allowance. In order to work out the reduction, you must first work out your total income. Add up interest on investments or savings, the grossed up dividend income, and other income including pensions and earnings on the calculations sheet  Ignore any tax-free income.

Then deduct any covenants or Gift Aid payments which you pay net of tax to a charity. Before deducting them they must be converted into the equivalent amount before tax is paid. You do this by dividing by 4 and multiplying by 5. Also deduct any payments you make into a company or personal pension. Use the gross amount.

If your total income worked out in this way is more than £21,800 then your age-related allowance will be reduced. The reduction is £1 for every £2 income over £21,800 (but your age-related allowance will never be reduced below the £5,435 allowed to people under 65).

So the £9,030 allowance for those aged 65–74 is reduced if income exceeds £21,800 and falls to £5,435 if income is £28,990 or more. If you are 75 or more, your allowance is reduced to £5,435 if your income is £29,290 or more.

Each extra £1 of income brings your tax allowance down by 50p. That means that another 50p of income is taxed and the extra £1 income is also taxed. So an extra £1 of income creates a tax on £1.50. Tax on £1.50 is 30p. So your net income after tax only rises by 70p for each extra pound of other income. In effect, you end up paying tax at a high rate of 30p in the pound on extra income between £21,800 and the upper limit for your age-related allowance.

If your income is in this zone it might be worth considering one of the tax-free savings schemes mentioned earlier. Any income from these schemes is ignored completely when working out your total income.

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Blind person's allowance

There is a special tax allowance for blind people. The allowance is £1,800 in 2008–09 and is available to anyone who is blind but not to those who are partially sighted. The rules for qualifying are slightly different in Scotland and Northern Ireland – ask HM Revenue & Customs for advice.

If a married person is blind, but does not have enough income to use up their blind person's allowance, then it can be transferred to their spouse. If both partners are blind, they get one allowance each.

Work out your full tax allowances. Take account of the rules for reducing the age-related allowance if your income is more than £21,800. Write the answer down in the full tax allowances box on the calculations sheet.

Married Couples

The married couple’s allowance works differently from the full tax allowances. It is simply a rebate which is deducted from your tax after the rest of the calculation has been done. This rebate is one tenth of the amount of the allowance. If the amount to be deducted is more than the tax due then you pay no tax.

Who gets it?

Married couple's allowance was abolished for most couples from April 2000. But it is still available to a married couple or registered civil partners who live together where at least one spouse or partner was born before 6 April 1935 and so is now at least 73 years of age. The amount of the married couple's allowance depends on the age of the older spouse.

• older spouse born before 6 April 1934 – £6,625
• older spouse born 6 April 1934 to 5 April 1935 – £6,535

Couples who marry or register a civil partnership in the future will get the allowance as long as at least one of them was born before 6 April 1935. 

The rules about which spouse or partner gets the married couple’s allowance changed on 5 December 2005.

* For couples first entitled to the allowance before 5 December 2005, it is normally the husband who is entitled to the married couple’s allowance.

* For couples first entitled to the allowance from 5 December 2005, it is the spouse or partner with the higher income who is entitled to the allowance.

Only one member of an entitled couple will get the married couple’s allowance. However, some of the married couple’s allowance can be transferred to the other spouse in two ways. These transfers are unlikely to help couples where the married couple’s allowance was first claimed on 5 December 2005 or later.

Firstly, if the other spouse or partner asks before the start of the tax year, they can have £1,270 of the allowance transferred to them. They do not need the agreement of their spouse or partner. They can have £2,540 transferred to them with agreement.

It may be worth arranging the transfer if the other spouse pays tax at a higher rate, or the spouse or partner wants a share of the married couple's allowance. The full married couple's allowance cannot be transferred, only the first £2,540.

You have to ask for the transfer before the start of the tax year, so it is too late to do it for 2008–09. If you want to do it for 2009–10, then you must apply by 5 April 2009.

Secondly, if the income of the entitled spouse is too low to make use of all the married couple's allowance, then the amount they cannot use can be transferred to the other spouse. This rearrangement can be done up to six years after the end of the tax year. Contact your local HM Revenue & Customs Enquiry Centre for more information.

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Year of marriage

Couples who marry or become civil partners during the tax year get one twelfth of the married couple’s allowance for each complete ‘tax month’ after the date of their ceremony. ‘Tax months’ start on the 6th of the month.

Table 2: Married couple's allowances 2008-09

	Allowance	Rebate (10% of allowance)
Other partner has none of it
Value to other partner	nil	nil
Value to entitled partner
72 to 74	£6,534*	£653.50*
75 or more	£6,625*	£662.50*
Other partner has £1,220 of it
Value to other partner	£1,270	£127.00
Value to entitled partner
72 to 74	£5,265*	£526.50*
75 or more	£5,355*	£535.50*
Other partner has 2,440 of it
Value to other partner	£2,540	£254.00
Value to entitled partner
72 to 74	£3,995*	£399.50*
75 or more	£4,085*	£408.50*
* These allowances will be reduced if the entitled partner's total income is more than about £29,000. For marriages or registered partnerships that begin in 2008-09, one twelfth of the allowance is given for each complete 'tax month' after the date of the marriage or partnership ceremony. For marriages that took place before 5 December 2005 'entitled partner' means the husband. For marriages or civil partnerships that took place on or after after 5 December 2005 'entitled partner' means the spouse or civil partner with the higher income. 'Other partner' means the partner who is not the entitled partner. The amount of married couple's allowance depends on the age of the the older spouse or partner at 5 April 2009. Age ranges refer to the age of the older member of the couple.

Married couple's allowance should be applied automatically but HM Revenue & Customs does make mistakes so it is always worth checking, especially because of the changes which happened in 2005.

Higher incomes

If your income in 2008–09 is around £29,000 or more then you may lose some of your married couple’s allowance. The income that counts is that of the partner who is first entitled to it – the husband for marriages before 5 December 2005 and the spouse or partner with the higher income for marriages and civil partnerships which took place on or after 5 December 2005. This rule applies even if some of the allowance has been transferred to the other spouse or partner.

Work out your total income by adding up interest on investments or savings, the grossed up dividend income, and other income including pensions and earnings from the boxes on the calculations sheet. If the entitled person has an income above £21,800 any personal age-related allowance is reduced first. Then the married couple's allowance is reduced if their income exceeds £28,990 (aged 73–74) or £29,290 (aged 75 or more).

For example, a married man of 74 with a wife of 70 has his personal allowance reduced from £9,030 to £5,435 if his income is £28,990 or more. Then his married couple's allowance of £6,535 is reduced and will be cut to the minimum £2,540 if his income exceeds £36,980. The same overall figure applies even if his wife claims some of the married couple's allowance.

If your income is in this zone it might be worth considering one of the tax-free savings schemes mentioned earlier. Any income from these schemes is ignored completely when working out your total income.

Work out your married couple’s allowance. Remember if you marry or become civil partners in 2008–09 you only get one twelfth of the allowance for each complete tax month after the date of your ceremony. Take account of the rules for reducing these allowances if your income is around £29,000 or more. Write the answer down in the married couple’s allowance box on the calculations sheet.

Tax on savings interest

From April 2008 the way that interest is taxed has changed and is now more complicated. If your income from other sources – usually pension or earnings – is more than your personal allowance plus £2,320 then your savings interest will be taxed at 20p in the pound. If your other income is less than your personal tax allowance then some of your savings interest will be tax free until your income reaches your personal allowance. Above that the first £2,320 of your savings interest will be taxed at 10p and the rest (if there is more) will be taxed at 20p in the pound. If your other income is between your personal allowance and your personal allowance plus £2,320 then some of your savings interest will be taxed at 10p in the pound. The most that can be taxed at 10p is the difference between your other income and the sum of your personal allowance plus £2,320.