When it comes to talking about tax, the term ‘personal allowance’ is bandied about a lot. But what does it mean? And why does it matter that you’re up to speed on it?
If you have a minute (or maybe two), we’ll explain everything you need to know about the Personal Allowance…
What is the Personal Allowance?
The Personal Allowance is the maximum amount of income you can receive without having to pay tax.
For the 2023/24 tax year (which ended 5th April), the standard Personal Allowance was £12,570. It will stay at this rate for the 2024/25 tax year, which started on 6th April 2024.
While this is the standard Personal Allowance, depending on your tax code, the amount you can earn before paying tax might change. We run through this in detail in our guide to tax codes.
What counts as income for the Personal Allowance?
The money you earn on your day job is just one of several income sources that count towards your Personal Allowance. We’ve listed a number of them below:
- Profit made from self-employment (including earnings from digital platforms like Airbnb or Uber)
- Money made from employment
- COVID-19 support (e.g., SEISS)
- Income from a trust
- Interest made on savings accounts
- Job benefits (like a company car)
- Most pension incomes
- Investments (like cryptocurrency)
- Dividend income
How much is the Personal Tax Allowance?
As touched on a moment ago, the Personal Allowance is frozen at £12,570, barring any unexpected turn of events – which you can never rule out.
However, your Personal Allowance may be bigger if you claim Marriage Allowance or Blind Person’s Allowance, and will be smaller if you earn more than £100,000 a year.
Personal Allowance for income over £100,000
Your Personal Allowance decreases by £1 for every £2 that your ‘adjusted net income’ is above £100,000.
‘Adjusted net income’ is your full taxable income before any Personal Allowance, or tax reliefs have been deducted.
In short, the more you earn, the more tax you’re expected to pay. And if your income hits £125,140 or more, your Personal Allowance reduces to zero.
Increasing your Personal Allowance
You might be wondering (and many do) if there’s any way you can legitimately increase your Personal Allowance to pay less tax? In a word, yes, but under strict conditions.
The Marriage Tax Allowance
The Marriage Tax Allowance allows lower-earning partners – whether a husband, wife, or civil partner – to transfer £1,260 of their Personal Allowance to their other half. By making use of this, the other partner’s tax bill could be reduced by up to £252.
To qualify for the Marriage Tax Allowance, the lower earning partner usually needs to have an income below the Personal Allowance threshold (under £12,570).
For more on how this works in practice, read our Marriage Tax Allowance guide.
The Blind Person’s Allowance
For people registered blind, the Blind Person’s Allowance increases the Personal Allowance to £3,070 for 2024/25.
Similar to the Marriage Tax Allowance, the Blind Persons’ Allowance can be transferred to a spouse or civil partner if the recipient does not receive enough income to use up the allowance in full.
Speak to an expert
Like lots of tax terminology, the Personal Allowance can be tricky to understand on the face of it. But boiled down, it’s fairly straightforward – it’s the income threshold from which you start to pay income tax.
If you think you might have overpaid income tax as a Construction Industry Scheme (CIS) worker and want to find out if you’re due a tax rebate, please contact us.
