As we are now well into the 2023/24 tax year, some of the biggest questions on many people’s minds are around personal tax allowance (PTA) – how much is it, and how does it impact me as a UK taxpayer? Let’s delve deep into understanding the PTA for 2023/24.
Personal Tax Allowance: An Overview
The personal tax allowance is a threshold set by the UK government under which an individual doesn’t have to pay any income tax. It’s a specific portion of your income that you’re allowed to earn tax-free each year. Any amount earned over this allowance is subject to taxation at the stipulated rates.
Although you may not be required to pay tax under the personal tax allowance, keep in mind that you may still be required to submit a tax return.
Personal Tax Allowance for 2023/24
For the tax year 2023/24, the personal tax allowance is £12,570.
This essentially means that if your annual income is up to £12,570, you won’t have to pay any income tax. However, for income exceeding this threshold, the excess amount is taxable. Depending on the tax band you fall into, you’ll be charged at different rates.
Tax Bands for 2023/24:
- Basic rate: If your income is over the PTA but under £50,270, the excess amount is charged at 20%.
- Higher rate: If your income is between £50,271 and £125,140, the excess over £50,271 is taxed at 40%.
- Additional rate: If your income exceeds £125,140, anything over this amount is taxed at 45%.
Remember, these rates apply to your income over the PTA, not your total income.
Income over £100,000
One point to keep in mind is the income limit of £100,000. If your adjusted net income exceeds this amount your PTA will be reduced. For every £2 of income over £100,000, your allowance is reduced by £1. Therefore, the allowance may be nullified entirely if your income is considerably above this threshold. This means your allowance is zero if your income is £125,140 or above.
Special Circumstances
There are several circumstances where your Personal Allowance may be higher.
- If you claim Marriage Allowance you can transfer £1,260 of your personal allowance to your husband, wife or civil partner. This reduces their tax by up to £252 in the tax year. Find out more.
- Blind Person’s Allowance is an amount added to your yearly personal allowance. For 2023 to 2024, it’s an additional £2,870. Find out more
Tax Bands Frozen until 2028
The PTA historically was increased annually to account for inflation and ensure that most low-income individuals remain tax-free. However, the personal allowance has remained the same for three years in a row.
In 2021, it was announced the allowance would be frozen at £12,570 from the 2021/22 tax year, through to April 2028. Also, the additional rate threshold was lowered and again frozen from £150,000 to £125,140 from April 2023.
These measures mean that, as wages rise, people will pay tax on a larger proportion of their earnings, and more people will move into higher tax brackets, potentially raising £25.5bn more a year in tax by 2027-28.
Know your limits
The personal tax allowance is a cornerstone of UK tax policies, ensuring that low to middle-income individuals are not unduly burdened by taxes. It’s essential to be aware of the thresholds and understand their implications on your tax liabilities, especially with tax bands now being frozen.
As always, while this blog post offers a general overview of the personal tax allowance for 2023/24, individual circumstances can vary. To get a tailored understanding of how PTA impacts your finances, don’t hesitate to get in touch. Remember, efficient tax planning is key to maximising your hard-earned money. Stay informed, plan ahead, and ensure you make the most of any allowances and reliefs available.
