Your Personal Allowance is like a magical force field that protects your money from tax – understanding it is crucial for keeping more cash in your pocket! 
What is a Personal Allowance? (The Basics!) 
Your Personal Allowance is the amount you can earn each year without paying Income Tax. For 2025/26, it’s £12,570 – think of it as your annual “get out of tax free” card!
This means:
- First £12,570 – Tax-free zone!
- Above £12,570 – Welcome to tax town!
How It Works (Maths Made Simple!) 
Example: If you earn £25,000:
- £12,570 – No tax (happy dance time!)
- £12,430 – Taxed at 20% (basic rate)
- Income tax – £2,486 (ouch, but could be worse!)
- Employees National Insurance – £994
When You Lose Personal Allowance (The Disappearing Act!) 
High earners face the allowance vanishing trick:
- Income over £100,000 – Allowance shrinks by £1 for every £2 earned above £100,000
- Income of £125,140+ – Poof! No Personal Allowance at all!
Example: Earning £110,000 (the painful reality):
- Excess over £100,000 – £10,000
- Allowance reduction – £5,000 (£10,000 ÷ 2)
- Remaining allowance – £7,570 (£12,570 – £5,000)
It’s like having your cake and watching half of it disappear! 
Tax Planning Tips (Outsmart the System!) 
Just under £100,000? Consider these ninja moves:
- Pension contributions to reduce taxable income
- Salary sacrifice schemes
- Timing of bonuses or dividends (strategic financial choreography!)
Already over £125,140? You’re in the 45% tax bracket with no allowance – welcome to the big leagues! 
Marriage Allowance (Love Saves Money!) 
Transfer unused allowance to your spouse if:
- You earn less than £12,570 (lucky you!)
- Your spouse is a basic rate taxpayer
- Potential saving: Up to £252 per year (date night money!)
Other Allowances (The Supporting Cast!) 
Dividend Allowance: £500 tax-free (2025/26) 
Savings Allowance: £1,000 (basic rate) or £500 (higher rate) Capital Gains Allowance: £3,000 (2025/26)
Remember: Personal Allowance is automatic – you don’t need to claim it! It’s like having a helpful tax fairy working behind the scenes. 
Savings Allowance:** £1,000 (basic rate) or £500 (higher rate) Capital Gains Allowance: £3,000 (2025/26)
Remember: Personal Allowance is automatic – you don’t need to claim it. It’s built into tax calculations and PAYE systems
Links
https://www.gov.uk/marriage-allowance
https://www.gov.uk/income-tax-rates
“Disclaimer: Paul Stankiewicz is the owner and principal at Paul Marks & Co Chartered Accountants which is the trading name of Paul Marks Ltd a Limited Company registered in England and Wales (registered number 4487645).This article is designed for the information of readers only and is the opinion of the author only. Readers should not act on any of the information contained in this article without seeking professional advice. Nothing in this article constitutes advice, nor does the transmission, downloading or sending of any information or the Material create any contractual relationship. Links to third party websites are provided as a convenience to the reader, Paul Marks Ltd does not control and is not responsible for any of those websites or their content. Paul Stankiewicz and Paul Marks Ltd accepts no liability or responsibility whatsoever for any loss or damage suffered by any user of the information contained on or accessed through this article or the Material downloaded.
