The short version: The Personal Allowance is the amount you can earn each year before paying any Income Tax. It’s your tax free chunk. Check gov.uk for the current figure.
Does everyone get it?
Most people do. But once your income goes above a certain threshold, you start losing it. For every £2 you earn above that level, you lose £1 of allowance. Earn enough and it disappears entirely.
What does that mean in practice?
There’s a band of income where your effective tax rate is 60%, because you’re losing allowance at the same time as paying 40% tax. It catches a lot of people by surprise.
Can you transfer any of it?
If you’re married or in a civil partnership and one of you earns below the Personal Allowance, you might be able to transfer some to the other through Marriage Allowance.
Does it apply to all income?
It applies to income taxed through the normal Income Tax system. Capital gains and dividends have their own separate allowances.
Not sure how your Personal Allowance is being used? Let us check your situation.
