Our website is being updated

We are currently updating our website for the 2024/25 tax year. Please bear with us for a short while as we do this. 

Note: From 6 January 2024, the main rate of class 1 National Insurance contributions (NIC) deducted from employees’ wages reduced from 12% to 10%. From 6 April 2024, that rate is reduced further to 8%, the main rate of self-employed class 4 NIC is reduced from 9% to 6% and class 2 NIC is no longer due. Those with profits below £6,725 a year can continue to pay class 2 NIC to keep their entitlement to certain state benefits. We will include these changes with our updates in the next few weeks.

Updated on 6 April 2024

Personal allowance

The personal allowance is deducted from your taxable income before income tax is calculated. It can therefore reduce the amount of income tax you pay. The personal allowance means that you can have a certain amount of taxable income each year without paying tax.

pound coins scattered against a white background.
Stopped_clock / Shutterstock.com

Content on this page:

The personal allowance

The personal allowance is a tax allowance that is available to most people who are resident in the UK and some who are not resident in the UK. There is more information on who is eligible for the personal allowance on our page Tax allowances.

The personal allowance reduces the amount of taxable income on which you pay tax. 

Example: personal allowance

Cheng has total taxable income of £14,570 for 2024/25. She is not married, is UK resident and domiciled and has no other income.

Cheng will pay tax on £2,000:

 

£
Total taxable income

14,570
Less: personal allowance

-12,570
Cheng pays tax on

2,000

Taxable income which is not actually taxed because of the personal allowance is still taxable income. Using the personal allowance against this income does not make it tax-free, it just means that you may not have to pay tax on that part of your income. This is important, because means-tested benefits often consider whether income is taxable when determining what income is taken into account.

What is the personal allowance? A stack of coins depicting total taxable income, deducting the personal allowance and showing the remaining coins as income on which tax is due.
LITRG creation

Income below the personal allowance

If your income is below your personal allowance, meaning you do not make full use of your personal allowance, you lose the benefit of the unused part.

However, you can choose to give up part of your personal allowance to give your spouse or civil partner a reduction in their tax bill. This is known as the marriage allowance (transferable tax allowance for married couples and civil partners).

You cannot carry any unused personal allowance backwards or forwards to a different tax year.

How to use the personal allowance

Different types of income can be taxed differently. When deciding which type(s) of income to deduct the personal allowance from, you can do this in such a way as to minimise your tax liability.

It is usually best to use your personal allowance against earned income or non-savings income first, but this is not always the case. If you have savings income and dividend income, as well as earned income, it may be best to set your personal allowance against your earned income and your dividend income, before your savings income.

Equally Scottish taxpayers may find it beneficial to set some of their personal allowance against savings income, to make best use of the Scottish starter rate of 19%.

You may have to contact HMRC to ask them to allocate the personal allowance according to your wishes.

Example: use of personal allowance

Geoff lives in England, and has income as follows in 2024/25: employment income of £11,000, savings income of £7,500 and dividend income of £2,500.

In the first instance, the personal allowance would be allocated to the employment income and then the savings income.

£ £
Employment income

11,000

Deduct part of personal allowance

-11,000

Employment income subject to tax

0
Savings income

7,500

Deduct part of personal allowance (12,570-11,000)

-1,570

Savings income within starting rate for savings band

-5,000

Savings income within personal savings allowance

-930

Savings income subject to tax

0
Dividend income

2,500

Dividend income within dividend allowance

-500

Dividend income subject to tax

2,000
Tax on dividend income at 8.75%

175

Total tax liability

175

However, Geoff can ask HMRC to allocate his personal allowance to employment income, partly to savings income, but allowing him to make full use of the personal savings allowance and starting rate for savings, and then to his dividend income. This results in a lower tax liability:

£ £
Employment income

11,000

Deduct part of personal allowance

-11,000

Employment income subject to tax

0
Savings income

7,500

Deduct part of personal allowance

-1,500

Savings income within starting rate for savings band

-5,000

Savings income within personal savings allowance

-1,000

Savings income subject to tax

0
Dividend income

2,500

Deduct part of personal allowance (12570-11000-1500)

-70

Dividend income within dividend allowance

-500

Dividend income subject to tax

1,930
Tax on dividend income at 8.75%

168.87

Total tax liability

168.87

Example: use of personal allowance – Scottish taxpayer

Bill lives in Scotland and has income as follows in 2024/25: employment income of £14,000 and savings income of £7,000.

In the first instance, his personal allowance would be allocated against his employment income.

£ £
Employment income

14,000

Deduct personal allowance

-12,570

Employment income subject to tax

1,430
Scottish income tax on employment income at 19%

271.70

Savings income

7,000

Savings income within starting rate for savings band (5000-1430)

-3,570

Savings income within personal savings allowance

-1,000

Savings income subject to tax

2,430
Income tax on savings income at 20%

486.00

Total tax liability (271.70+486)

757.70

However, Bill can ask HMRC to allocate his personal allowance to both his employment income and his savings income, allowing him to make full use of both personal savings allowance and the Scottish starter rate of 19%. This results in a lower tax liability:

£ £
Employment income

14,000

Deduct part of personal allowance (14,000-2306)

-11,694

Employment income subject to tax

2,306
Scottish income tax on employment income at 19%

438.14

Savings income

7,000

Deduct part of personal allowance (12570-11694)

-876

Savings income within the starting rate for savings band (5000-1430)

-3,570

Savings income within personal savings allowance

-1,000

Savings income subject to tax

1,554
Income tax on savings income at 20%

310.80

Total tax liability

748.94
Next
Back to top