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.