Can I Carry Forward Unused Personal Tax Allowance?
By
HuutiMoney
If you are wondering whether or not you can carry forward the unused portion of your Personal Tax Allowance, you will find the answer to your question in the following blog post. We will also analyse situations in which unused personal tax allowance can be transferred; as well as discuss what happens to unused personal tax allowance at the end of the tax term.
Can I Carry Forward Unused Personal Tax Allowance?
No, you cannot carry forward unused Personal Tax Allowance to future tax years in the UK. In the United Kingdom, Personal Tax Allowance is a crucial aspect of the tax system that determines the amount of income an individual can earn before being liable to pay income tax. (the standard personal tax allowance in the UK is £12,570 for the tax year 2023/2024).
It is important to note that this allowance is a “use it or lose it” benefit. Any unused portion of the allowance cannot be carried forward to offset future tax liabilities. Once the tax year ends, the allowance is reset, and an individual is entitled to the full allowance for that specific year. Any unused portions cannot be carried forward to reduce tax liability in subsequent years.
However, if you are married or in a civil partnership, you can transfer up to £1,260 of the unused portion of your personal allowance to your spouse/partner, subject to certain eligibility criteria. This can help reduce their tax liability.
To transfer unused Personal Tax Allowance to a partner, individuals can use the Marriage Allowance scheme in the UK. This scheme allows a partner whose income is less than their Personal Tax Allowance to transfer a portion of their unused allowance to their spouse or civil partner.
However, there are certain eligibility criteria to be met to claim the transfer of personal allowance. This includes the following:
- you are married or in a civil partnership (couples who live together are not eligible)
- your income is below your personal tax allowance
- your partner pays income tax at the basic rate of 20% (their income is between £12,571 and £50,270)
If you are unsure of whether or not you meet these eligibility criteria, you may need to seek tax advice from a professional.
How Can You Transfer Unused Personal Tax Allowance To A Partner In The UK?
You can transfer the unused portion of your personal allowance to a partner or spouse under the Marriage Allowance scheme in the UK. If your income is lower than your personal allowance, you can transfer a part of it to your civil partner or spouse, provided they meet certain eligibility criteria. This transferred allowance will help decrease their tax liability.
Let’s consider a married couple, John and Sarah, where John has an income that is below the personal tax allowance, and Sarah is a basic rate taxpayer.
John’s income is £10,000, which is below the personal tax allowance of £12,570; while Sarah’s income for the same tax year is £30,000, which is within the basic rate tax bracket.
In this scenario, John can transfer a portion of his unused personal allowance to Sarah using the Marriage Allowance.
John can transfer £1,260 of his personal allowance to Sarah. As a result, Sarah’s adjusted personal allowance becomes £13,830 (£12,570 + £1,260).
Now, Sarah’s taxable income is calculated as follows:
Sarah’s income: £30,000
Adjusted personal allowance: £13,830
Taxable income for Sarah: £30,000 – £13,830 = £16,170
What Happens To Unused Personal Tax Allowance If It Isn’t Transferred To A Partner?
If an individual does not transfer or carry forward their unused personal allowance, it is essentially lost. Taxpayers in the UK must be aware that their personal tax allowance is limited to a specific amount each year. This amount determines the threshold of their income before they become liable to pay income tax.
Any unused portion of their personal tax allowance during the tax year cannot be carried forward or transferred to the following years to offset their tax liabilities. Therefore, any unused allowance is forfeited.
For example, if an individual’s personal tax allowance for a particular tax year is £12,570 and they only earn £10,000 within that year, leaving £2,570 of unused personal allowance, they will not be able to carry forward or transfer that unused allowance to offset against income in the following tax year. In the next tax year, their personal tax allowance will be reset to the standard amount applicable for that year.
Conclusion:
The above discussion helps to conclude that you cannot carry forward unused personal tax allowance to a subsequent tax term if you’ve not been able to consume the entire amount within the ongoing tax year. The only exception to this rule is transferring the unused portion of your personal tax allowance to a partner or spouse; that too if both of you meet the eligibility criteria.
References:
What tax allowances am I entitled to?