What is the Personal Allowance?
The personal allowance is the amount of income you can receive in a tax year before you start paying income tax. Income up to the allowance is tax-free; income above it is taxed at the applicable income tax rates.
The amount is set by the government, normally confirmed at the Budget, and applies for a full tax year from 6 April to 5 April. It has been frozen for long periods rather than rising with inflation, which means more income is taxed as wages rise. GOV.UK publishes the current figure on its Income Tax rates and Personal Allowances page.
How the Allowance Fits with the Tax Bands
Once your income exceeds the personal allowance, it is taxed in bands:
| Band | Taxable income | Tax rate |
|---|---|---|
| Personal allowance | Up to the allowance | 0% |
| Basic rate | Above the allowance, up to the higher rate threshold | 20% |
| Higher rate | Above the higher rate threshold, up to the additional rate threshold | 40% |
| Additional rate | Above the additional rate threshold | 45% |
These bands apply in England, Wales and Northern Ireland. Scotland sets its own income tax rates and bands for non-savings, non-dividend income, but uses the same personal allowance.
Personal Allowance Taper
If your adjusted net income exceeds the taper threshold, your personal allowance is reduced by £1 for every £2 of income above it. Once income is high enough, the allowance disappears completely, at the point where the additional rate starts.
How the Taper Works
| Adjusted net income | Personal allowance | Effective marginal tax rate |
|---|---|---|
| Below the taper threshold | Full allowance | 40% (for higher rate taxpayers) |
| In the taper band | Reduced by £1 for every £2 over the threshold | 60% |
| Above the point where the allowance is fully lost | £0 | 45% |
The 60% effective marginal rate arises because every additional £2 earned removes £1 of tax-free allowance, which is then taxed at 40%, on top of the 40% tax on the £2 itself. Together that is £1.20 of tax on £2 of income.
Strategies to Preserve the Personal Allowance
Individuals with income near the taper threshold may be able to preserve their personal allowance by:
- Making pension contributions (which reduce adjusted net income)
- Donating to charity through Gift Aid (which also reduces adjusted net income)
- Using salary sacrifice arrangements for pension contributions or other qualifying benefits
For example, someone whose adjusted net income is £2,000 over the threshold could make a gross pension contribution of £2,000. That restores £1,000 of personal allowance, saving £400 in tax on top of the relief on the contribution itself.
Marriage Allowance
The marriage allowance allows one spouse or civil partner to transfer 10% of the personal allowance to the other, provided:
- The transferor has income below the personal allowance
- The recipient is a basic rate taxpayer
- They are married or in a civil partnership
Tax Saving
The transferor’s allowance falls by 10% and the recipient’s rises by the same amount, so the couple’s combined tax-free income stays the same. The benefit comes from the recipient using the extra allowance against income that would otherwise be taxed at 20%: the saving each year is the transferred amount multiplied by 20%.
The marriage allowance can be backdated for up to four tax years, so eligible couples who have not yet claimed may receive a refund for earlier years as well.
How to Claim
Apply through the HMRC online service at GOV.UK. Once set up, the transfer continues automatically each year until cancelled.
Blind Person’s Allowance
Individuals registered as blind (or severely sight-impaired) with their local authority receive an additional Blind Person’s Allowance on top of the standard personal allowance. The amount is set each tax year. This can also be transferred to a spouse or civil partner if unused.
How the Personal Allowance Affects Your Tax Code
Your personal allowance is reflected in your tax code, which tells your employer how much tax-free income to allocate through PAYE.
For someone with only the standard personal allowance and no adjustments, the number in the tax code is the allowance divided by 10, followed by the letter L, which indicates the standard allowance. When the allowance changes, the standard code changes with it.
If HMRC adjusts your personal allowance — for example, to include flat rate expenses or to account for untaxed income — your tax code number will change accordingly.
Personal Allowance for Non-Residents
Most UK residents are entitled to the personal allowance regardless of nationality. Non-residents may also claim it if they are:
- A citizen of the European Economic Area (EEA) or Switzerland
- A Crown employee serving overseas (or their spouse/civil partner)
- A resident of a country with a double taxation agreement that provides for the allowance
Non-residents who do not fall into these categories receive no personal allowance and are taxed on their UK income from the first pound.
Personal Allowance and State Pension
The State Pension counts as taxable income and uses up part of your personal allowance. Because the State Pension rises each April while the personal allowance has been frozen, the full new State Pension now uses up almost all of the allowance.
This means pensioners with even modest additional income from private pensions, savings, or part-time work will begin paying income tax.
Tax-Free Income Outside the Personal Allowance
Several other allowances and reliefs provide tax-free income on top of the personal allowance:
- Personal savings allowance: tax-free savings interest, larger for basic rate taxpayers, smaller for higher rate taxpayers and nil for additional rate taxpayers
- Starting rate for savings: a band of savings interest taxed at 0% for people with low non-savings income
- Dividend allowance: a slice of dividend income taxed at 0%
- Trading allowance: £1,000 of gross trading income
- Property allowance: £1,000 of gross property income
These allowances operate independently and can significantly increase the total amount of tax-free income available.