Your personal allowance, explained simply

The personal allowance is the amount of income you can receive in a tax year before you pay any income tax on it. For the current tax year — which runs from 6 April to 5 April — that figure is £12,570 for most people. It has been frozen at that level for several years, and it is currently expected to stay there until April 2028.

That single number matters more than it might look. If you are an employee, it is built into your tax code, which is why the first chunk of your pay each month arrives untouched. If you are self-employed, it is the starting point for your Self Assessment calculation. Either way, it sets the pace for everything else: how much tax you hand over, how much you can save before tax bites, and whether a pay rise or a second income will land you with an unexpected bill.

The £100,000 threshold worth knowing about

Most people assume the personal allowance is theirs no matter what they earn. Not quite. Once your income goes above £100,000, you start losing £1 of allowance for every £2 you earn above that line. By the time you reach £125,140, the allowance has disappeared entirely.

This creates an odd effect. Between £100,000 and £125,140, the effective tax rate on that slice of income is 60%, because you are paying 40% tax and losing allowance that would otherwise have been tax-free. If you are anywhere near that range, it is worth planning:

• Paying more into a workplace or personal pension reduces your taxable income and can restore some or all of the allowance.
• Salary sacrifice arrangements, such as a cycle-to-work scheme or extra pension contributions, lower your taxable pay rather than just your take-home pay.
• Gift Aid donations extend your basic rate band, which can help if you are close to a threshold.

Even a modest contribution can make a disproportionate difference at this income level, so it is worth running the numbers before the tax year ends.

How your allowance sits alongside the tax bands

The allowance is only the first layer. On top of it, the UK income tax bands for the current year are broadly:

• Basic rate 20% on taxable income from £12,571 to £50,270.
• Higher rate 40% on taxable income from £50,271 to £125,140.
• Additional rate 45% on taxable income above £125,140.

Two things catch people out. First, National Insurance is separate, and the personal allowance does not shield you from it — you start paying employee NI at 8% once earnings pass the same £12,570 mark. Second, if you live in Scotland, the personal allowance is the same but the bands above it work differently, with more gradations and slightly different rates. Your payslip will reflect whichever system applies to you.

Allowances people often forget

The personal allowance is the headline act, but there is a supporting cast that many households never claim:

• Marriage Allowance. If you are married or in a civil partnership and one of you earns below the personal allowance, you can transfer £1,260 of it to the other. That is worth up to £252 a year, and you can backdate claims.
• Blind Person's Allowance. Worth £3,130 this year, on top of your personal allowance, if you are registered blind or severely sight impaired.
• Personal savings allowance. Basic rate taxpayers can earn £1,000 of interest tax-free, higher rate taxpayers £500, and additional rate taxpayers nothing.
• Dividend allowance. The first £500 of dividend income is tax-free, whatever your rate.

None of these are automatic. Marriage Allowance in particular is often left unclaimed simply because nobody realised it existed.

Practical ways to use your allowance well

Knowing the number is only useful if you act on it. A few habits tend to pay off:

• Use your ISA allowance. You can put up to £20,000 a year into ISAs, where interest, dividends and growth are free of UK tax. It does not affect your personal allowance, but it stops other income from pushing you into a higher band.
• Top up your pension. Contributions attract tax relief at your marginal rate and reduce taxable income, which is especially valuable near £100,000.
• Spread income where you can. If you run a business or hold investments jointly, making use of both partners' allowances can keep more of the total in the tax-free zone.
• Time your withdrawals. If you are drawing from a pension, taking a little more in one year and less the next can keep you under a threshold rather than over it.

Check your tax code and avoid nasty surprises

Your tax code is where your allowance meets reality. Codes starting with 1257L usually mean the full allowance is being applied. If yours looks different, it may be because HMRC is collecting tax owed from earlier years, or because a benefit in kind is being accounted for.

Check your code each April and again after any change in job, income or benefits. A quick look at a payslip or your Personal Tax Account can catch a mistake early, and corrections can be backdated. Keep hold of P60s, P45s and any statements of income — they make sorting out a discrepancy far easier.

The personal allowance is not glamorous, but it is the foundation of your tax position. Understand it, use the extras you are entitled to, and the rest of your money planning gets considerably simpler.