Section 4: Income Tax: Reduction of Personal Allowance for Individuals With Income Exceeding £100,000
Summary
1.Section 4 applies reductions from 2010-11 to the amount of an individual’s personal allowance, where their income exceeds £100,000.
Details of the Section
2.Subsection (1) renumbers the existing provisions in section 35 of the Income Tax Act 2007 (ITA) as new section 35(1) and provides the personal allowance for those aged under 65 including the amount, which remain unchanged.
3.New section 35(2) provides that where an individual’s adjusted net income exceeds £100,000 their personal allowance is by reduced one–half of the excess.
4.New section 35(3) provides that where the result of the application of new section 35(2) is not a multiple of £1, then the amount of the personal allowance is rounded up to the nearest £1.
5.New section 35(4) provides a signpost to the meaning of adjusted net income in section 58 of ITA.
6.Subsection (2) inserts new provisions into section 36 and section 37 of ITA which provide the higher amounts of personal allowance for those aged 65 to 74 and aged 75 and over. The higher amounts of personal allowance are reduced where an individual’s adjusted net income exceeds an income limit. Section 36(2)(b) and section 37(2)(b) of ITA currently provide for these higher levels of personal allowance to be reduced by one-half of the excess, but no lower than the basic level of personal allowance for someone under 65. The new provisions ensure an individual’s personal allowance, where they have an adjusted net income over £100,000, will be linked to the level of the personal allowance they would be entitled to if they were aged under 65.
7.Subsection (3) amends section 57 of ITA, the provision for indexation of the personal allowances following the movement of current section 35 of ITA to become new section 35(1).
8.Subsection (4) provides that the amendments made by subsection (1) and subsection (2) of this section are effective from 2010-11.
9.Subsection (5) provides that the amendment made by subsection (3) of this section is effective from 2011-12.
Background Note
10.Individuals, who meet the conditions set out in section 35 of ITA, are entitled to a personal allowance to be set against their income. In 2009-10, the personal allowance for individuals aged below 65 is £6,475, £9,490 for those aged 65 to 74 and £9,640 for those aged 75 and over.
11.From 2010-11, where an individual’s adjusted net income exceeds £100,000 their personal allowance will be reduced by one-half of the excess. For example, in 2010-11 an individual with an adjusted net income of £100,002 will have their personal allowance reduced by £1.
12.The calculation of an individual's adjusted net income for the purposes of these new income-related reductions to personal allowances is provided for by section 58 of ITA; it is the same measure of income that is used for the calculation of existing income-related reductions to personal allowances for those aged between 65 and 74, and those aged 75 and over. Using adjusted net income as the measure of an individual's income will provide consistency across all the reductions that will apply to personal allowances from 2010-11.
