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- ✓Completely withdrawn at £125,140 income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 (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 the 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, saving £252 in tax annually through Marriage Allowance
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.
Tapering
Gradual reduction of allowances or benefits as your income increases, such as personal allowance withdrawal above £100,000.
Fiscal Drag
The effect of frozen tax thresholds combined with wage growth, causing more people to pay higher rates of tax over time.
PAYE (Pay As You Earn)
The system employers use to deduct Income Tax and National Insurance from your wages before you're paid.