The personal allowance is a deduction against net income that is available to all UK resident individuals (and some non-residents, see below). The basic personal allowance for 2021/22 is £12,570 (£12,500 for 2020/21). The personal allowance is frozen at £12,570 until 5 April 2026.
Where an individual’s net income exceeds £100,000, the personal allowance is reduced by £1 for every £2 of income above £100,000.
A husband and wife / civil partners are treated as separate persons and so each is entitled to a personal allowance to set against their own personal income. Where one spouse / civil partner is working and the other is not, both personal allowances can be utilised by the transfer of income-producing assets to the non-worker. See the Utilising allowances and lower rate bands guidance note for more details.
From 6 April 2015, an individual is able to ‘transfer’ 10% of the personal allowance (£1,260 for 2021/22; £1,250 for 2020/21) to the spouse / civil partner, who receives a tax reduction of 20% of this amount. In order to make the transfer, both parties must not be higher rate or additional rate taxpayers. See the Transferable tax allowance guidance note.
The personal allowance is a deduction from net income (ie a Step 3 deduction, see the Proforma income tax calculation guidance note).
It is generally true that if the individual has insufficient income in the tax year to use the allowance, it is lost; it is not possible to carry forward the unused proportion. However, from 2015/16, it may be possible to transfer 10% of the unused allowance to the spouse / civil partner, see the Transferable tax allowance guidance note.
To be entitled to a personal allowance, the individual must fall into one of the residence categories below:
resident in the UK (see the Residence ― overview guidance note)
national of a state within the European Economic Area (EEA), see the GOV.UK website for the list