Income tax brackets and personal allowance
Do you know what tax bracket you’re in or how much you’re allowed to earn before you get taxed? If you don’t, you’re in the right place. Find out about Personal Allowance limits and how income tax and National Insurance determine the amount of money that actually belongs to you once you’ve been paid.
Do you know what tax bracket you’re in or how much you’re allowed to earn before you get taxed? If you don’t, you’re in the right place. Find out about Personal Allowance limits and how income tax and National Insurance determine the amount of money that actually belongs to you once you’ve been paid.
What’s my Personal Allowance for the 2023/24 tax year?
The standard Personal Tax Allowance that applies from 6 April 2023 to 5 April 2024 is £12,570. This means that you don’t get taxed on the first £12,570 that you earn – although there are some exceptions:
- If your income is over £100,000, your tax-free Personal Allowance will be smaller.
- If you claim Marriage Allowance or Blind Person’s Allowance, the Personal Allowance threshold is likely to be more generous.
- If you make over £125,140 a year, you don’t have a Personal Allowance.
Which Income Tax band am I in?
Working out which Income Tax band you’re in is quite simple. It’s all based on the amount of taxable income you make each tax year.
| Income tax band | Income tax threshold | Income tax rate |
| Personal Allowance | £0 - £12,570 | 0% |
| Basic Rate | £12,571 - £50,270 | 20% |
| Higher Rate | £50,271 - 150,000 | 40% |
| Additional Rate | £150,000+ | 45% |
| Income tax band | Taxable income | Income tax rate |
| Personal Allowance | £0 - £12,570 | 0% |
| Starter rate | £12,571 - £14,667 | 19% |
| Basic rate | £14,668 - £25,296 | 20% |
| Intermediate rate | £25,297 - £43,662 | 21% |
| Higher rate | £43,663 - £150,000 | 41% |
| Top rate | £150,000+ | 46% |
Let’s take the example of someone earning £15,000 a year. In simple terms, the first £12,570 they make is covered by their Personal Allowance, so there’s no tax to pay. However the remaining £2,430 is taxed at the rate of 20% (or 19% in Scotland) because it passes the first tax threshold.
However, if they earned £80,000, the first £12,570 would be tax free, the amount between £12,571 and £50,270 would be taxed at 20%, and the remaining amount would be taxed at the higher rate of 40%.
In Scotland, the same earnings would be split between the Starter, Basic, Intermediate and Higher rates of taxation.
The tax system is designed to be as fair as possible, meaning that the bulk of the tax paid is by the wealthiest, while lower earners contribute less.
What if my income is above £100,000?
If your annual income rises above £100,000, your Personal Tax Allowance (originally £12,570) decreases by £1 for every £2 of taxable income over £100,000 that you’re earning. This means that, once you’re earning £125,140 a year or more, your Personal Allowance falls to £0.
What is Marriage Allowance?
Marriage Allowance is a way for spouses or civil partners to share a portion of their Personal Tax Allowance. It lets you transfer up to £1,260 of your Personal Allowance to your partner, reducing the amount of tax they need to pay that year.
To qualify for Marriage Allowance, you must meet the following criteria:
- You’re married or in a civil partnership.
- One of you does not pay Income Tax or has an income below the Personal Allowance limit – less than £12,570 in the 2023/24 tax year.
- The other pays the basic income tax rate. This is 20% and applies to those earning from £12,571 - £50,270. In Scotland, they must pay the Starter, Basic or Intermediate tax rate, which means their income is usually between £12,571 and £43,662.
As an example, if you earn £12,000 a year, which is £570 below the 2020 Personal Tax Allowance of £12,570, you don’t pay tax. Your partner is the main earner in the household and earns £40,000 a year. They also have a Personal Allowance of £12,570, which means they have a taxable income of £27,430. As a couple, you have £27,430 in taxable income.
With Marriage Allowance, you can transfer £1,260 of your Personal Allowance to your partner. This means that your Personal Allowance will drop to £11,310. Meanwhile, your partner’s increases to £13,830, which means your taxable income as a couple drops to £26,170.
What is Blind Person’s Allowance?
Blind Person’s Allowance is added to your Personal Allowance. For the 2022/23 tax year, this allowance is set at £2,600.
To qualify for Blind Person’s Allowance, you must be registered with your local council as blind or severely sight impaired and have documentation from your doctor confirming the fact.
As with the Marriage Allowance, this amount can be transferred to a spouse or civil partner, even if they’re not blind themselves.
What happens if income tax thresholds are raised?
A rise in income tax thresholds is something that affects us all. The Personal Allowance increased from £10,800 in 2016-2017, to £12,570 in 2021-2022. The higher rate threshold also increased from £43,000 to £50,271, at which point you’ll start getting taxed at a rate of 40%.
The increase in Personal Allowance, along with a rise on the higher rate threshold, means you’re being taxed on less of your annual income, and can earn more before you’re taxed more heavily. This should leave you better off. Of course, a rise in the cost of living and inflation may cancel out the benefits.
This is why it’s important to try to save what you can. It’s worth taking the time to see why a savings account, or a cash ISA which offers tax-free savings, might be good for you.
Frequently asked questions
What’s my Personal Allowance if I’m self-employed?
You get the same Personal Allowance as someone being paid through PAYE by an employer – so £12,570 during the 2023/24 tax year.
You may also be entitled to a ‘trading allowance’, which is a tax-free allowance for the first £1,000 of your income from self-employment.
What’s my Personal Allowance if I’m an employee and self-employed?
If you’re freelancing on the side of a PAYE role or juggling two jobs, one as an employee and one as self-employed, the Personal Tax Allowance is applied to the role that HMRC view as your main job.
To calculate your income tax rate, the taxable income from both roles is combined.
When it comes to National Insurance, you’ll be paying separate amounts for each role.
Is National Insurance separate from income tax?
National Insurance is a separate form of tax that’s paid in addition to income tax. If you’re aged 16 or over and earning more than £242 a week, or making a profit of at least £6,725 a year if you’re self-employed, it’s a legal requirement that you pay it.
There are different types of National Insurance, known as classes, which are numbered 1 to 4. The class you’re in is based on your employment status – whether you’re an employee or self-employed – and the amount you earn.
By paying National Insurance, you qualify for a number of benefits which, depending on the class of National Insurance that you pay, may include:
- Basic State Pension
- Additional State Pension
- Contribution-based Jobseekers Allowance
- Contribution-based Employment and Support Allowance
- Maternity Allowance
- Bereavement Support Payment.
A guide to National Insurance classes is shown below:
| National Insurance class | Paid by |
| Class 1 | Employees earning £242+ per week who are under State Pension age. Money is automatically deducted by employers. |
| Class 1A or 1B | Paid directly by employers into their employee’s expenses or benefits. |
| Class 2 | The self-employed making a profit of £6,725 or more a year. |
| Class 3 | Voluntary contributions to fill or avoid gaps in your National Insurance record. |
| Class 4 | The self-employed earning £11,908 or more in profit per year. |
If you’re an employee, you’ll also have a category letter applied to your National Insurance. This tells employers how much National Insurance they need to contribute on your behalf when they run their payroll.
| Category | Definition |
| A | Employees who do not qualify for the categories below |
| B | Married women and widows entitled to pay reduced National Insurance |
| C | Employees over the State Pension age |
| H | Apprentices under 25 |
| J | Employees who are already paying National Insurance through another job |
| M | Employees under 21 |
| Z | Employees under 21 who are already paying National Insurance through another job |
| X | Employees who don’t have to pay National Insurance, for example if they’re under 16. |
The amount of National Insurance to be paid in the 2023/24 tax year is calculated as follows.
|
Category |
Monthly salary |
||
|
£533-£758 |
£758.01-£4,189 |
Over £4,189 |
|
|
A |
0% |
12% |
2% |
|
B |
0% |
5.85% |
2% |
|
C |
N/A |
N/A |
N/A |
|
H |
0% |
12% |
2% |
|
J |
0% |
2% |
2% |
|
M |
0% |
12% |
2% |
|
Z |
0% |
2% |
2% |
What is Personal Savings Allowance?
On top of your Personal Allowance, you may also be entitled to a tax-free allowance on the interest you earn each year up to £1,000 in 2023/24. This is your Personal Savings Allowance.
It covers interest from current accounts, savings accounts, trust funds, government or company bonds and some life insurance, among others.
Savings from some National Savings and Investments accounts as well as those earned with an ISA don’t count towards your Personal Savings Allowance.
Your Personal Savings Allowance depends on your Income Tax band.
|
Income Tax Band |
Personal Savings Allowance |
|
Basic Rate |
£1,000 |
|
Higher Rate |
£500 |
|
Additional Rate |
£0 |
