The Personal Allowance is the amount of income an individual can earn each tax year before paying Income Tax. It applies to most types of income, including employment earnings, self-employment profits, and rental income, and is set by the government for each tax year.
How the allowance reduces at higher incomes
The Personal Allowance is gradually withdrawn once adjusted net income exceeds £100,000, reducing by £1 for every £2 earned above that threshold. This creates an effective marginal tax rate well above the headline higher rate for income falling within that band, which is why many higher earners look at pension contributions or other reliefs to bring income back below the threshold.
Marriage Allowance
Spouses and civil partners who are not using their full Personal Allowance can transfer a fixed portion of it to their partner through the Marriage Allowance, provided the receiving partner is a basic rate taxpayer.
Tax rules depend on individual circumstances and can change. This glossary is general information rather than personalised tax advice.