🌟 What is This Personal Allowance Sorcery?
Ahoy there, brave adventurer! Welcome to the mystical land of Personal Allowances! Picture yourself as a wizard armed with the power to shrink your taxable income and beat the evil Income Tax Dragon. 🐉🧾
In the not-so-far-away kingdom of the UK, every resident is bestowed with a magical boon called the personal allowance. As of the tax year 2016–17, it’s valued at a gold-worthy £11,000. Though, alas, the elder wizards of yore who were over the age of 65 or 75 once received extra riches, but these additional age-related boons were banished to history in April 2016. 🕰️✨
⚖️ The Quest to Calculate Your Taxable Income
Here’s how this saga unfolds: your personal allowance helps chop off a portion of your income, so only the remaining part is up for taxing. Picture it as a magical shield protecting a part of your treasures.
1```mermaid
2graph TD
3 income[Income] -->|Subtract Personal Allowance| taxable_income[Taxable Income]
### An Exemplary Tale
You earn a bounty of £20,000 in a year. With your personal allowance of £11,000, you're only taxed on:
Taxable Income = £20,000 - £11,000 Taxable Income = £9,000
So, only £9,000 faces the dragon's breath of income tax. Well played, wizard! 🎩🔥
## Age-Old Legends: The Vanished Allowances
In ancient times (aka before April 2016), wizards aged 65 and above enjoyed extra personal allowances. But the sands of time froze these age-related allowances in 2013, phasing them out by April 2016. Here's why they are dearly missed by the elder councils.
## ✨ Earning More Than Your Allowance?
Avoid panic! If your exchequer (i.e., annual income) crosses the allowance, fret not. *Income tax* awaits but will scale depending on how hefty your bounty is.
### Tax Tiers To Look Forward To
* **Basic Rate** - 20% tax on income after personal allowance up to £37,500.
* **Higher Rate** - 40% for income between £37,501 and £150,000.
* **Additional Rate** - 45% for income over £150,000.
## 🌟 Conclusion: A Quest Worth Embarking On
Understanding personal allowances can feel like unraveling mystical scrolls. But mastering this sorcery helps you better understand your treasure and guard your savings! So, embark on this quest, brave wizard, armed with wisdom and wit. Mature with financial wisdom and spiff up with tax-saving categorically!
## Quizzes
1. **What is the value of personal allowance for the tax year 2016–17?**
- a) £10,000
- b) £11,000
- c) £12,000
- d) £14,000
- **Answer:** b) £11,000
- **Explanation:** The personal allowance for the 2016–17 tax year is £11,000.
2. **What is personal allowance used for?**
- a) To increase taxable income
- b) To calculate the VAT
- c) To reduce taxable income
- d) To buy wizard hats
- **Answer:** c) To reduce taxable income
- **Explanation:** The personal allowance helps reduce a portion of an individual's income so less income is subject to tax.
3. **Who used to receive additional allowances before they were frozen in 2013?**
- a) Wizards under 21
- b) Over-aged giants
- c) Individuals over 65 or 75
- d) Mythical creatures
- **Answer:** c) Individuals over 65 or 75
- **Explanation:** Additional allowances were previously given to those aged over 65 or 75 before they were phased out in April 2016.
4. **How do you calculate taxable income using personal allowance?**
- a) Taxable Income = Gross Income + Personal Allowance
- b) Taxable Income = Gross Income - Personal Allowance
- c) Taxable Income = Savings + Personal Allowance
- d) Use a magical spell
- **Answer:** b) Taxable Income = Gross Income - Personal Allowance
- **Explanation:** Subtracting the personal allowance from the gross income gives the taxable income.
5. **In which year did the extra allowances for those aged over 65 or over 75 completely disappear?**
- a) 2012
- b) 2015
- c) 2016
- d) 2018
- **Answer:** c) 2016
- **Explanation:** The additional age-related allowances completely disappeared in April 2016.
6. **What income tax rate applies for income between £37,501 and £150,000?**
- a) 10%
- b) 20%
- c) 40%
- d) 50%
- **Answer:** c) 40%
- **Explanation:** The higher rate of 40% applies to income in the range of £37,501 to £150,000.
7. **Does personal allowance apply to all UK residents?**
- a) Yes
- b) No
- **Answer:** a) Yes
- **Explanation:** Every individual resident in the UK is entitled to a personal allowance for calculating taxable income for income tax.
8. **If you earn £20,000 annually, what is your taxable income considering a personal allowance of £11,000?**
- a) £20,000
- b) £11,000
- c) £9,000
- d) £5,000
- **Answer:** c) £9,000
- **Explanation:** Taxable income is calculated by subtracting the personal allowance (£11,000) from total earnings (£20,000), resulting in £9,000 taxable income.
