Tax-free Personal Allowance

Your Personal Allowance is the amount of income you can earn before you start paying Income Tax.

How Personal Allowance works

Your Personal Allowance is the amount of income you can have before you pay tax. Most people's Personal Allowance is £12,570.

Income that uses your Personal Allowance

Your Personal Allowance applies to your total taxable income, which includes:

• wages from employment
• profits from self-employment
• most pensions, including state pensions
• rental income
• benefits from your job
• income from a trust
• interest on savings over your savings allowance

Higher income reduction

Your Personal Allowance may be reduced if your income is over £100,000. It decreases by £1 for every £2 that your income exceeds £100,000.

If your income is £125,140 or above, your Personal Allowance is reduced to zero.

Example calculation with reduced Personal Allowance

If you earn £110,000 in the tax year:

• Your income exceeds £100,000 by £10,000
• Your Personal Allowance is reduced by £5,000 (£1 for every £2 over £100,000)
• Your new Personal Allowance is £7,570 (£12,570 - £5,000)