OK, here comes the geeky bit…
The personal allowance is the amount most people can earn before they have to pay a penny in income tax. Under the changes announced in the Budget, it’s set to rise from £11,850 to £12,500 – meaning that anyone who earns between £12,500 and £100,000 a year will be spared paying tax on £650 of earnings.
At the moment, you would pay 20% tax on this £650 (the difference between £11,850 and £12,500), equalling £130 – but from April next year, you won’t. So that’s what you’re likely to gain – though of course, to work out the overall impact on your take-home pay you need to factor in higher rate threshold and national insurance changes too.
The personal allowance is reduced for those earning £100,000+
For those earning over £100,000, the personal allowance goes down by £1 for every £2 of income above the £100,000 limit.
Those earning £123,700 or above do not get a personal allowance at all. This means they pay tax on all their earnings, and will start paying the higher rate of income tax earlier – currently, this would be on any income over £34,500.