The personal allowance restriction affects individuals in the UK earning over £100,000 in a tax year, including if you’re self-employed and your business profits exceed £100k.
The restriction results in a gradual reduction of your personal allowance, currently £12,570, until it is completely phased out.
Here’s how the personal allowance restriction works and how to avoid it so you can maximise your tax savings.
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Friendly Disclaimer: Whilst I am an accountant, I’m not your accountant. The information in this article is legally correct but it is for guidance and information purposes only. Everyone’s situation is different and unique so you’ll need to use your own best judgement when applying the advice that I give to your situation. If you are unsure or have a question be sure to contact a qualified professional because mistakes can result in penalties.
How Much is the Personal Allowance Restriction?
The personal allowance restriction for the tax year 2024/25 is £1 for every £2 of taxable earnings over £100k. This means once your income reaches £125,140 your entire personal allowance (£12,570 for 2024/25) is lost.
If you’re income unexpectedly goes over £100k and someone employs you, for example, due to a bonus payment, you could see an income tax rate of 60% being applied on your payslip to claw back personal allowance received.
If you are self-employed, you’ll see your personal allowance restriction on your tax calculation from HMRC when you fill in your tax return.
Here are examples of the personal allowance restrictions to help you understand how much personal allowance you’ll receive at different levels of taxable income.
| Taxable Income | Personal Allowance Restriction | Personal Allowance Available |
|---|---|---|
| £100,000 | £0 | £12,570 |
| £105,000 | £2,500 | £10,070 |
| £110,000 | £5,000 | £7,570 |
| £115,000 | £7,500 | £5,070 |
| £120,000 | £10,000 | £2,570 |
| £120,140 | £12,570 | £0 |
Read => The UK Personal Allowance 2024-25
Read => UK Tax Brackets and Income Tax Bands (2024)
How to Avoid the Personal Allowance Restriction
If you’re self-employed accurately tracking your business expenses is one of the easiest ways to make sure you are claiming all the allowable expenses you are entitled to and legitimately reducing your business profits, helping to keep you in the lowest possible tax band. So make sure you are staying on top of your bookkeeping and open a business bank account to simplify tax time by keeping all your spending in one place
Read => Self Employed Expenses – What Can You Claim?
Read => How to Do Your Own Accounts When You’re Self-Employed
Whether you’re employed or self-employed, topping up your pension to maximise your tax-free pension contributions will help to reduce your taxable income and the personal allowance restriction you suffer.
Read => A Beginners Guide to Self Employed Pensions
Read => Pension Allowance
Whatever your employment status, making sure you are claiming for all the income tax allowances and reliefs you’re entitled to, will help to reduce your taxable income.
If you are unsure what allowances and reliefs you are entitled to speak to a professional who can review your situation and offer bespoke advice.
Want to Read More About Self Employed Tax?
If you’ve enjoyed this post you may like to read more about self employed tax. Here are some of my most popular blog posts on this topic…
- Self Employed Tax: An Easy Guide for Beginners (2024)
- The UK 60% Tax Trap Explained (63% in Scotland)
- Self-Assessment Tax Returns for £100k Earners
Any Questions?
I’d love to help if you have any questions about this topic. Feel free to ask over in my group ‘The Self-Employed Club‘.
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