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What is the tax exemption limit in the UK?

Published in UK Tax Exemption 2 mins read

The tax exemption limit in the UK, often referred to as the Personal Allowance, is £12,570. This is the amount of income you can earn in a tax year before you start paying Income Tax.

Understanding the Personal Allowance

The Personal Allowance represents the portion of your income that is tax-free. For most individuals, this allowance means that the first £12,570 of their earnings is not subject to Income Tax. If your income is below this threshold, you generally will not pay any Income Tax.

UK Income Tax Bands and Rates

Once your income exceeds the Personal Allowance, it becomes subject to Income Tax according to different tax bands and rates. The current tax rates and bands for earned income are as follows:

Band Taxable income Tax rate
Personal Allowance Up to £12,570 0%
Basic rate £12,571 to £50,270 20%
Higher rate £50,271 to £125,140 40%
Additional rate over £125,140 45%

Note: These bands apply to most of the UK. Different rates and bands may apply in Scotland.

How the Personal Allowance Works

  • Automatic Application: For employees, your employer typically adjusts your tax code to ensure you receive your Personal Allowance automatically.
  • Self-Assessment: If you are self-employed or have other forms of income, you report your income and claim your Personal Allowance through a Self Assessment tax return.
  • Impact on Take-Home Pay: By reducing your taxable income, the Personal Allowance helps to increase your take-home pay, ensuring that a foundational portion of your earnings is entirely yours.

For further details on Income Tax rates and your Personal Allowance, you can visit the official GOV.UK website.