Additional Personal Allowance

What Is Additional Personal Allowance?

The term additional personal allowance refers to an extra tax deduction set forth by HM Revenue and Customs (HMRC) on income tax returns in the United Kingdom. This deduction applied to single, separated, or widowed individuals who were not eligible to receive the married couple allowance and who financially supported a child under the age of 16. The additional personal allowance was abolished in 2000. 

How Additional Personal Allowance Worked

Income taxes are filed with and collected by HM Revenue and Customs in the United Kingdom. This agency is the British equivalent of the Internal Revenue Service (IRS). British taxpayers are charged income tax on different types of income, including wages from employment, self-employed profits, state benefits, pension earnings, rental and trust income, and any benefits earned from an employer. Taxes are exempt on a variety of income sources including:

• The first £1,000 of self-employment earnings
• The first £1,000 earned from a rental property
• Winnings from the National Lottery
• Certain dividends

A personal allowance reduces an individual's tax liability. Just like the standard deduction in the United States, it is the portion of income that isn't subject to taxation. Anything over the personal allowance—that is, whatever is left over after the personal allowance is deducted—is taxed at the current tax rate.

Certain taxpayers were able to claim an additional personal allowance to reduce their tax bill even further. This allowance was in effect until April 2000. Single individuals, along with those who were separated or widowed were able to use it as long as they didn't claim the allowance for married couples.

Anyone claiming the additional personal allowance was required to be financially supporting a child under 16. Parents could also claim the benefit for children over the age of 16 that were full-time students or who were part of a two-year apprentice program. The allowance also applied to men with an incapacitated wife and a qualifying child under the age of 16 living in the household, provided the wife was incapacitated throughout the year.

According to British tax law, a qualifying child is a child of the claimant or a child that is supported and cared for by the claimant. Only one allowance was paid, regardless of the number of children cared for by the person claiming the additional allowance.

Special Considerations

As noted above, the additional personal allowance was eliminated in April 2000. This means every taxpayer is subject to the same personal allowance, regardless of marital status, gender, and whether or not they have children. The standard personal allowance in the U.K. for the 2020–2021 tax year is £12,500. There is no income tax payable on any income earned under this amount. The amount of income tax paid in each tax year depends on how much earnings are above the personal allowance and how much of a person's income falls within the various tax bands.

Example of the Additional Personal Allowance

Here's a hypothetical example to show how the additional personal allowance worked. Let's say a widow named Olivia had 12-year old child living her in 1998. Under the British tax system, Olivia was able to claim an allowance beyond the standard personal allowance even though she was no longer married following the passing of her husband two years prior. This additional allowance helped Olivia pay less in income taxes for the year.