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Note:

This question is in the context of the UK and its policies.

I understand that if your income is below the tax allowance (£11,000), you pay no income tax. However, I think my textbook is also trying to say that if your income is above the allowance, you only pay income tax on whatever is left after the allowance has been deducted from your total income. Is this true?

Oh, and I was also wondering if there was any difference between the 'personal tax allowance' and the 'tax allowance'.

Thanks

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    $\begingroup$ I'm voting to close this question as off-topic because it asks only about the mechanics of a tax, not about its economic effects (a question about for example the incidence of a tax would be on-topic for Economics SE). It appears more suitable for Personal Finance and Money SE. $\endgroup$ – Adam Bailey Apr 25 '16 at 9:03
  • $\begingroup$ Voting to close because it's a question about accounting in the UK, not about economics. $\endgroup$ – Fix.B. Apr 26 '16 at 2:43
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Not everyone benefits from the tax allowance, but most people with incomes above £11,000 do. As you suspect, those with income higher than £11,000 only pay tax on their income above £11,000, and thus gain £11,000*tax rate. However, the personal tax allowance is clawed back at incomes above £100,000 at a 50% rate, so those with incomes above £122,000 don't benefit from the allowance at all. The official UK government site is here.

At the margin, this means that those with incomes less than £11,000 pay no tax on each additional dollar of income, while those with incomes between £100,000 and £122,000 pay an extra-high amount in tax for each additional dollar earned (the tax allowance doesn't change the tax rate on each additional dollar of income for incomes between £11,000 and £100,000, or above £122,000). The entire picture is nicely summarized in this Telegraph article.

Here in Canada, we have an equivalent tax allowance, but without the clawback.

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