What is it?

If you are aged 65 or more you may get a higher tax-free personal allowance (this is the amount you can earn each year before paying tax), as tax allowances increase at age 65 and at age 75.The March 2012 Budget announced that this tax allowance will be phased-out but changes do not start to take effect until April 2013.

If you have an income below the tax allowance amounts you should not pay any tax. If you have an income above these amounts then the amount you pay will be less than the tax due on under-65 year olds.

The tax allowance increases in the tax year of your 65th and 75th birthday. If you become 65 or 75 during the tax year (for example, the 2012/13 tax year runs from 6 April 2012 to 5 April 2013) you are entitled to the allowance for that age group.

The normal annual tax allowance for individuals aged 64 or under is £8,105 in the 2012/13 tax year (April 6th 2012 – April 5th 2013). However, if you are aged 65 – 74 your annual tax allowance is increased to £10,500 and if you are aged 75 or over it is increased to £10,660 (in the 2012/13 tax year). You can get information on current tax rates from HM Revenue and Customs' tax rates page.

Can I get it?

If you are aged 65 or over you are entitled to the age-related tax allowance, so long as your income is below the 'income limit'. The income limit is £25,400 in the 2012/13 tax year.

For incomes greater than the income limit the higher age-related allowance is gradually phased-out: it is reduced by £1 for each £2 your income is above the income limit. It can not be reduced to less than the standard tax-free personal allowance, unless your income is above £100,000 (from April 2010 the personal allowance is phased-out on incomes above £100,000).

For example, if you're 66 and have an income of £25,800 - £400 over the limit in 2012/13 - your age-related personal allowance would be reduced by £200, from £10,500 to £10,300.

How do I claim?

If HM Revenue & Customs know your age you should get the personal allowance automatically. If you have done this already you do not need to contact your Tax Office.

It is possible that your Tax Office might not know your age unless you've told them or included your date of birth on a tax return. You may need to send them a P161 'Pension Enquiry' form to confirm your age. For more information see HM Revenue and Customs' guidance on form P161.

If you want to claim a tax refund because you didn't use your personal allowance (or for any other reason), you need to do so within five years from the 31 January following the end of the tax year concerned. To claim a tax refund you need to contact your Tax Office.