Personal Allowance
Plain-English definition of Personal Allowance — part of our UK tax glossary.
Definition
The Personal Allowance is the amount of income you can earn each tax year before paying UK income tax — currently £12,570 (2024/25). It tapers away by £1 for every £2 earned above £100,000, creating the "60% tax trap" between £100,000 and £125,140.
Worked example
Earning £110,000 pushes you into the Personal Allowance taper: you lose £5,000 of allowance (£1 for every £2 above £100,000), which costs £2,000 extra tax. Combined with the 40% rate on the £10,000 above £100k, the effective marginal rate between £100k and £125,140 is 60%.
Why it matters
UK tax thresholds are full of cliff edges — the 60% trap between £100k and £125k, the FTB stamp duty relief above £625k, child benefit tapers — and the marginal rate you actually face at any given moment is rarely the headline number. Knowing the vocabulary lets you run the right calculation before a bonus, a house move, or a pension contribution.
Common mistake
Treating tax bands as averages rather than marginal rates. An extra pound of gross salary in the 40% band costs 42% at the margin (tax + NI), and inside the £100k taper it effectively costs 60%. The average tax rate on the payslip is not what you will pay on the next pound.
Calculators that use this concept
See also
- National Insurance (NI) — National Insurance is a UK tax funding state pensions and certain benefits. Employees pay 8% on earnings betwe…
- Marginal Tax Rate — Your marginal tax rate is the rate you pay on the next pound you earn — not the average rate you pay overall. …
- Capital Gains Tax (CGT) — CGT is the UK tax on profit when you sell assets (shares, second properties, crypto). The annual CGT allowance…
- Salary Sacrifice — An arrangement where you give up part of your gross salary in exchange for a non-cash benefit (usually pension…