Personal Allowance


Most people are allowed to receive a certain amount of income each year before paying tax. This is known as the basic personal allowance. But what is a Personal Allowance, when can you get it, and what sort of earnings is it actually set against?

What is a Personal Allowance?

Your Personal Allowance is the amount of money that you can earn each tax year before you pay income tax. It will vary depending on your circumstances.

Will I get a bigger Personal Allowance if I’m over 65?

In previous tax years, your Personal Allowance could have been more than the standard Personal Allowance as a result of when you were born. But this is no longer the case. For the 2017/18 tax year — running from 6 April 2017 to 5 April 2018 — the Personal Allowance is £11,500

If you have a standard Personal Allowance of £11,500, the following table breaks down the tax rates you will pay for each area of your income:

Band

Taxable income

Tax rate

Personal Allowance Up to £11,500 0%
Basic rate £11,501 to £45,000 * 20%
Higher rate £45,001 to £150,000 40%
Additional rate over £150,000 45%
* As of 2017/2018, the Scottish bands higher rate threshold will stay at £43,000 as per the 2016/2017 rates.

 
However, your Personal Allowance could be higher or lower if you meet certain criteria:

Why you could get more

  • Are you married, or in a civil partnership? 
    If you are, the Government's Marriage Allowance offers the opportunity to transfer £1,150 of your Personal Allowance to your husband, wife or civil partner. Your partner's income could then be tax free for the first £12,650 they receive; meaning their tax could be reduced by up to £230 within each tax year. However, you must earn less than your partner and have an income less than £11,500 per annum to be eligible. You partner's income will also need to be between £11,501 and £45,000 per annum (or £43,000 per annum if you are in Scotland). 

  • Are you registered with your local council as blind, or severly sight impaired?
    Should the answer be 'yes', then you can contact HM Revenue and Customs (HMRC) to apply for Blind Person's Allowance. If you are eligible, this adds a further £2,320 to your yearly tax-free Personal Allowance.

Why you could get less

  • You earn over £100,000
    Your Personal Allowance goes down by £1 for every £2 that your income is above £100,000. This means your personal allowance could reduce to zero if your income is above a certain level.

    For example:

    If you earn £110,000 then £10,000 of your salary is above £100,000. 
    10,000 / 2 = 5,000
    So your Personal Allowance would reduce by £5,000.
    £11,500 - £5,000 = £6,500.
    Adjusted Personal Allowance = £6,500.

  • You earn £123,000 or over
    In this case no personal allowance is available.

What counts as income for the Personal Allowance?

Income refers to not only earnings from employment, but also rent income, any dividends from shares you may own, your pension income and any interest you earn on savings (before the tax is taken off).  But it's worth bearing in mind that from 6 April 2016 the Government introduced a Personal Savings Allowance and a Dividend Allowance.

Your Personal Savings Allowance is a tax-free allowance from any income that you receive from savings or any interest that you earn on your savings. This is currently £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. Additional rate taxpayers do not get any Personal Savings Allowance.

The first £5,000 of any payments that you receive from dividends (which you would get if you own any shares in a company) are also tax free. After this amount, any income that you receive from dividends will be added to the rest of your taxable income and taxed at your marginal rate (as shown in the table above).  

Where can I find out more?

The best place to find every up to date detail of the Personal Allowance is the Gov.uk website. Read their webpage about Personal Allowances rates here.