The UK is currently navigating some tough economic times, and one proposal that’s gaining a lot of attention is the idea of raising the Personal Allowance from £12,570 to £45,000. If this change goes through, millions of workers might find themselves exempt from income tax altogether.
But as exciting as that sounds, there’s a lot of skepticism. People are asking if it’s even a realistic possibility, and who exactly would stand to benefit from such a dramatic change. In this article, we’ll explore what the Personal Allowance is, why this change is being suggested, who would see the most benefit, and how it might affect both the economy and the government.
What is the Personal Allowance?
The Personal Allowance is essentially the amount of money you can earn before you start paying income tax. For the tax year 2025/26, that limit is set at £12,570, a figure that hasn’t changed since 2021. If you earn more than this, you’re taxed on the additional income, based on various rates.
Interestingly, if you earn over £100,000, your Personal Allowance starts to shrink. For every £2 you earn above this threshold, you lose £1 of your allowance. If your income surpasses £125,140, you lose the whole allowance, meaning all of your income is taxed.
How the UK Tax System Works
The UK has a progressive tax system, meaning the more you earn, the higher your tax rate. For 2025/26, the tax bands are as follows:
- Personal Allowance: Up to £12,570 — no tax
- Basic Rate: £12,571 to £50,270 — taxed at 20%
- Higher Rate: £50,271 to £125,140 — taxed at 40%
- Additional Rate: Over £125,140 — taxed at 45%
Scotland, however, has its own tax rules due to its devolved powers.
Why Raise the Personal Allowance to £45,000?
There are a few reasons why this idea is being discussed.
First, the rising cost of living is squeezing people across the UK. With inflation driving up prices on essentials like food, housing, and energy, many workers are finding it difficult to make ends meet. At the same time, wages haven’t really kept pace, and this has created a lot of financial pressure.
Second, proponents argue that giving people more disposable income could stimulate the economy. If workers have more money to spend, it could boost demand for goods and services, potentially driving economic growth.
Lastly, some believe that the current tax system disproportionately impacts lower and middle earners, while the wealthiest can exploit loopholes and tax schemes to reduce their tax burden. A higher Personal Allowance would level the playing field, they say.
Who Would Benefit from This Change?
If the Personal Allowance were raised to £45,000, it would significantly reduce or eliminate taxes for many people.
- Someone earning £15,000 would save £486 in tax each year.
- Someone earning £25,000 would save £2,486.
- At £35,000, the saving would be £4,486.
- If you earned £45,000, you’d pay no income tax at all and save £6,486.
- Even those earning £55,000 would save around £6,486, as the first £45,000 would be tax-free.
- For higher earners, such as someone on £100,000, savings could reach £16,432.
The greatest benefits would go to those earning under £45,000, who would no longer pay income tax at all. For higher earners, the first £45,000 of their income would be tax-free, resulting in significant savings.
Potential Economic Impact
Raising the Personal Allowance has both positive and negative economic consequences.
On the positive side, having more disposable income could lead to increased consumer spending, which would help local businesses and stimulate job creation. Additionally, if workers are paying less tax, they might need fewer government benefits, which could save the government money.
However, the drawbacks are clear. The government would lose a substantial amount of revenue, which would have to be made up elsewhere. This could mean higher taxes in other areas, cuts to public services, or borrowing more money. There’s also the risk that increased spending could drive inflation even higher, worsening the cost-of-living crisis.
Is This Financially Feasible?
The main challenge with raising the Personal Allowance to £45,000 is the loss of government income. The Treasury would need to find ways to make up for this shortfall, such as by raising other taxes like VAT or Corporation Tax, cutting spending, borrowing more money, or hoping for strong economic growth to offset the losses.
The Government’s Stance
As of May 2025, the UK government has not adopted the proposal to increase the Personal Allowance to £45,000. In fact, the current rate of £12,570 is set to remain in place until April 2028, according to the official budgets. No immediate plans to change the threshold have been confirmed.
Public Opinion and Criticism
The idea of raising the Personal Allowance has found support among many citizens, especially those struggling with the high cost of living. The simplicity of the measure and its potential to put money directly into people’s hands has made it an appealing option.
However, critics argue that it could be unfair. While everyone would benefit, wealthier individuals would receive larger absolute savings, which could further exacerbate income inequality. Some people feel that the proposal could do more harm than good in terms of fairness.
Alternative Solutions
Other suggestions have been put forward, such as gradually increasing the allowance over several years, targeting tax relief for lower- and middle-income earners, or offering specific tax breaks to essential workers and sectors under pressure.
What Would This Mean for You?
If the Personal Allowance were raised to £45,000, a person earning £30,000 could save over £3,400 in tax annually. A household with two people each earning £40,000 would save nearly £9,000 combined. Self-employed workers would also benefit, though their tax situation might be a bit more complicated.
FAQs
Would this change apply across the UK?
The Personal Allowance rules would apply to the whole UK, though Scotland might make adjustments due to its devolved powers.
What about pensioners?
Pensioners earning less than £45,000 would also benefit, as they would be exempt from income tax.
When could this happen?
Tax changes typically take effect at the start of the tax year (April 6), but it would depend on government approval.
Raising the Personal Allowance to £45,000 would undoubtedly ease financial pressure on many households. While it could simplify the tax system and help millions of workers, it also comes with potential risks, especially in terms of government revenue. Whether or not this proposal becomes a reality, it’s clear that the debate about tax reform is more urgent than ever as the UK faces ongoing economic challenges.
