Income Tax is an unavoidable reality for the vast majority of the adult population. In fact, most of those who pay tax may not even notice that they are doing it as a result of the fact that they are taxed 'at source' using the PAYE system. As a result, many people are unaware of exactly how much they are being taxed, and at which point this taxation begins.
To see exactly how personal allowances affect your own take home pay and tax liability, you can use our free Income Tax Calculator.
In reality, both Income Tax and National Insurance Contributions (or NICs) are subject to a minimum income threshold. In practice, this means that the first portion of each individual's income is non-taxable. This portion is known as the 'personal allowance'. For the 2025-26 tax year, the basic personal allowance threshold is set at £12,570.
Total Income
It is important to note that this threshold is a level of 'total income'. This means that the figure relates not only to your salary and other 'earned' income, but also to 'unearned' income such as bank and building society interest. As a result, if you have a large number of savings or investment vehicles, you could quite conceivably find your personal allowances occupied before your salary has been factored in at all.
It is also important to understand the principle of income limits. Age-related allowances were abolished in 2015-16 when the standard personal allowance exceeded the previous age-related allowance amounts. The basic personal allowance is reduced if your income exceeds £100,000. For every £2 by which your income exceeds £100,000, your personal allowance will be reduced by £1.
Enter your salary and get a clear breakdown of your income tax, National Insurance, and take-home pay for the 2025/26 tax year. See exactly where your money goes.
Try our Income Tax Calculator free, here on this site →Your situation may be slightly different. ask a question below ↓ and our editorial team will reply with our advice.
Allowable Interest
As mentioned earlier in this article, your personal allowance includes both earned and unearned income. However, there are certain circumstances in which you can claim Tax Relief against 'allowable interest' payments. The most frequently used form of relief is on interest paid on the purchase of life annuities. Other than this, it is also possible to claim relief against:
- Interest paid on purchases of shares in partnerships
- The purchase of shares in a close company
- The purchase of machinery for use in a partnership
In these instances, the relief means that any interest paid on loans for these purposes is deducted from your total income for tax purposes.
In theory, HMRC should give you your personal allowances by default. However, for various reasons this often does not happen. If you think that you have paid too much tax you need to get a copy of form R40 from your tax office in order to apply for a repayment. Obviously, if you are a Self-Assessment Taxpayer it is even more important that you are fully conversant with the schedule of personal allowances and available relief.
I am 68 years old & my current income is less than £15000.00p but my tax coding says that I am on a band that assumes I am on an income of over £27700.00p Will this fact have any bearing on the personal allowance I have been given.
Thanks.
In the U.S. I am a dual citizen and know I may be liable for US income tax, but should they not tax me would I be liable for UK income tax on that amount?
Ask The Tax Guide a question
Ask our editorial team a question and we will reply with our advice. Tell us as much about your situation as you can: the more detail you give, the more useful our answer can be.
You do not need to use your real name. Please do not include your full address, phone number, email address, or the names of other people. We may edit or remove identifying details for privacy and legal reasons.
Comments are moderated before publication.