What is a Personal Allowance

What is a Personal Allowance?

The Personal Allowance is an amount set by the Government that you can earn before paying any tax. The Personal Allowance in the UK is currently (2017/2018) £11,500.  The amount changes each tax year, so will change again on 6 April 2018.

Your Personal Allowance may be bigger if you claim Marriage Allowance or Blind Person’s Allowance. You should also watch out if your income is over £100,000 as your Personal Allowance will be reduced.

Personal Allowance if you earn more than £100,000

Your Personal Allowance is reduced by £1 for every £2 of your income over £100,000.  Therefore if you earn more than £123,000 in the tax year 2017/2018 you will lose all your Personal Allowance.

How do I receive my Personal Allowance?

You automatically receive your personal allowance either by your Employer when they pay your salary or as part of working out you tax under Self Assessment.

What Happens if I Earn More than the Personal Allowance?

You pay income tax on earnings above your Personal Allowance.  The amount you pay is worked out according to different bands.  These bands for 2017/2018 are as follows:

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%
An Example:
Carlos earns £30,000 for the tax year 2017/2018.  He will pay tax of £3,700 and this is worked out as follows:
On the first £11,500 0% = £0
On the next £18,500 20% = £3,700
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Anita is a Chartered Accountant with over 10 years experience in accounting, tax and operations for Small Businesses. She is experienced across a diverse spectrum of businesses meaning the advice she provides is practical as well as technical.