What is the Personal Tax Allowance?
The personal tax allowance represents the threshold of earnings before you are liable to pay income tax on it.
Your personal allowance will cover your total gross income including income from employment, self employment, or multiple sources.
For example your earnings may come from an employer’s salary, rental property income, business related profits or a mix of these.
The personal allowance can only be utilised once within a tax year and isn’t transferable to a future tax year.
Your personal allowance can be increased if you are eligible to claim for other tax free allowances which is a good thing because you’ll pay less tax.
Some other tax free allowances are transferrable to a partner so they can use the extra allowance to reduce their taxable income.
What is the current Personal Tax Allowance?
The personal tax allowance is set at 12,570 which is meant to be in place until April 2026.
The government have frozen the personal allowance and higher rate income tax thresholds up to and including the 2025/2026 tax year.
A 12,570 personal allowance means you can earn £12,570 tax free with income tax applicable on any earnings exceeding the PA threshold.
How is the Personal Tax Allowance used?
The personal tax allowance reduces your total taxable income and is automatically applied by HMRC.
For example if your total earned income was £20,000 your taxable income would be £7,430 (subtracting £12,570 PA from £20,000).
The PA only lowers the amount of taxable income upon which you’re required to pay taxes. It’s important to note that even if some income isn’t taxed due to the PA it can still be classed as taxable income by HMRC.
This is particularly significant because means tested benefits often take into account whether or not an income is subject to tax when deciding what portion should be considered in their evaluations.
Any taxable income which is not covered by the personal allowance is then taxed at one or more of the income tax rates.
What rate your income is taxed at depends on the tax band your income falls into with the percentage of tax deducted increasing with each band.
Personal Tax Allowance and your tax code
Your personal allowance is an important factor when calculating your tax code. HMRC creates a tax code for every individual who receives PAYE income.
The tax code is sent by HMRC to your income source(s) to tell them how much income tax to deduct from you.
It’s recommended that you check that your personal allowance is correct otherwise your tax code could be wrong resulting in you over or underpaying income tax.
Checking your personal allowance should include making sure that all available allowances and tax reliefs are operated correctly.
Can I increase my tax free Personal Allowance?
In some circumstances you can increase your personal tax allowance by making use of other tax free allowances like:
Marriage persons allowance:
The marriage allowance enables the transfer of £1,260 from your (or your partners) personal allowance to your spouse or civil partner.
Tax can be decreased by a maximum of £252 within the tax year which is from 6th April to 5th April of the following year.
For both partners to reap benefits the partner with the lower income should typically have an earnings level that falls below the personal allowance.
Please note that transferring a portion of your personal allowance to your better half might require you to pay higher taxes individually but could still result in less overall taxation as a couple.
Blind persons allowance:
You’re eligible to apply for blind person’s allowance if you are officially listed as blind or severely sight impaired with your local council or you have a certificate indicating that you’re blind or severely sight impaired from your physician.
If you do not pay taxes or cannot fully utilise it your blind person’s allowance can be transferred to your spouse or civil partner.
Personal savings allowance:
The personal savings allowance aka PSA is a tax exempt allowance that enables you to accrue interest on your savings free of tax.
The amount of allowance you’re entitled to hinges on the income tax rate (or rates) applicable to your taxable income.
Self employed trading allowance:
If you’re self employed and earn up to £1,000 in income during a financial year then that amount might qualify for the tax free trading allowance.
The self employed trading allownace allows you to earn income up to the threshold free of income tax.
Property allowance:
The allowance for property income applies to the majority of taxpayers required to report their rental property income.
If your earnings from property within a tax year amount to £1,000 or less, you usually won’t have an obligation to disclose this income to HMRC.
For landlords with property income over the property allowance you should be declaring the income to HMRC on a self assessment tax return.
Tax relief for job expenses and your Personal Allowance
For employed taxpayers tax relief can be claimed back for some expenses incurred at work. A claim typically needs to be made online using a form P87 or a self assessment tax return if you submit one.
After a successful tax rebate claim for expenses your personal allowance is increased to incorporate the tax relief for expenses moving forward.
Additional rate tax and the Personal Allowance
Additional rate taxpayers are taxed at 45% on some of their income and are subject to reduced amounts in their personal allowance.
For every additional £1 above £100k there is a reduction in the personal allowance of two pounds.
Depending on the level of income the personal can be reduced to nil leaving some addtional rate taxpayers with no tax free personal allowance.
What should I do if my Personal Allowance is incorrect?
You can check your personal tax allowance by using the HMRC app or in your online personal tax account.
After reviewing your personal allowance and tax code (if you are employed) you may feel that it may be too high or too low.
If this is the case you can contact HMRC to discuss your findings and if an adjustment needs to be made they can arrange for your personal allowance to be updated.
