Personal Allowance
The amount of income you can earn tax-free each year (£12,570 for 2024/25), reduced if you earn over £100,000.
Key Points
- ✓Standard allowance is £12,570 for 2024/25
- ✓Frozen until 2028, causing Fiscal Drag
- ✓Reduced by £1 for every £2 earned over £100,000
- ✓Completely withdrawn at £125,140 income
- ✓Applied automatically through PAYE or Self Assessment
Detailed Explanation
The Personal Allowance is the amount of income you can earn each year without paying Income Tax. For the 2024/25 tax year, most people have a Personal Allowance of £12,570.
This allowance has been frozen since 2021/22 and is scheduled to remain at this level until 2028, which means more people will pay tax as wages increase - a phenomenon known as Fiscal Drag.
Your Personal Allowance is reduced by £1 for every £2 you earn over £100,000. This means if you earn £125,140 or more, your Personal Allowance is reduced to zero.
Some people may receive additional allowances, such as Blind Person's Allowance (£3,070 extra) or the Marriage Allowance (transferring £1,260 to a spouse earning less than the Personal Allowance).
Your Personal Allowance is automatically applied through the PAYE system if you're employed, or you claim it through Self Assessment if you're self-employed.
Practical Examples
- •If you earn £20,000, you pay no tax on the first £12,570, and 20% Basic Rate Tax on the remaining £7,430 = £1,486 in tax
- •Someone earning £110,000 loses £5,000 of Personal Allowance (£10,000 over £100k ÷ 2), leaving them with £7,570 Personal Allowance instead of the full £12,570
- •A married couple where one earns £10,000 and the other earns £30,000 can transfer £1,260 of unused allowance via Marriage Allowance, saving £252 in tax annually
Frequently Asked Questions
Related Terms
Income Tax
A progressive tax on your earnings, charged at 20%, 40%, or 45% depending on your income level (after personal allowance).
Basic Rate Tax
Income Tax charged at 20% on income between £12,571 and £50,270 (2024/25).
Higher Rate Tax
Income Tax charged at 40% on income between £50,271 and £125,140 (2024/25).
Marriage Allowance
Allows you to transfer £1,260 of your personal allowance to your spouse/civil partner if they earn more than you (saving them £252 in tax).
Blind Person's Allowance
An extra tax-free allowance of £3,070 available to registered blind or severely sight-impaired people.
Fiscal Drag
The effect of frozen tax thresholds combined with wage growth, causing more people to pay higher rates of tax over time.