What is the Personal Allowance for 2024/25 and when does it reduce?

For the 2024/25 tax year, the Personal Allowance is £12,570. This is the amount of income you can earn before you start paying income tax. It has been frozen at this level since 2021/22 and is expected to remain frozen until at least April 2028.

When does the Personal Allowance reduce?

If your income exceeds £100,000, your Personal Allowance starts to reduce. It decreases by £1 for every £2 of income above the £100,000 threshold. This means:

• At £100,000 income, your allowance is the full £12,570.
• At £110,000 income, your allowance is reduced to £7,570.
• At £125,140 income or above, your Personal Allowance is completely eliminated (reduced to £0).

This creates a hidden 60% marginal tax rate on income between £100,000 and £125,140. For every £100 earned in this range, you lose £50 of Personal Allowance (which was saving you £20 in basic rate tax), plus you pay £40 in higher rate tax. The effective rate is therefore 60%.

Strategies to retain your Personal Allowance include:

• Making pension contributions to bring your adjusted net income below £100,000
• Donating to charity through Gift Aid, which also reduces your adjusted net income
• Using salary sacrifice arrangements offered by your employer

You do not get a Personal Allowance on taxable income above £125,140 at all.