A confirmed rise in the personal tax allowance always makes headlines — and for good reason. The personal allowance determines how much you can earn before paying Income Tax, so even a relatively small increase can affect millions of workers and pensioners across the UK.
With HMRC confirming a rise to £20,070, many people are asking the same questions. Who benefits? When does it start? How much will you actually save? And does it apply to everyone?
Here’s a clear and practical guide explaining what the new £20,070 tax‑free personal allowance means and how it could affect your take‑home pay.
What Is the Personal Tax Allowance
The personal tax allowance is the amount of income you can earn each tax year before paying Income Tax.
It applies to income such as:
Salary
Self‑employment earnings
Private pensions
The State Pension
Rental income
The allowance is administered by HM Revenue and Customs, which sets tax codes and collects Income Tax on behalf of the government.
If your annual income is below the allowance, you pay no Income Tax. If you earn above it, you pay tax only on the amount that exceeds the threshold.
What Has Changed
The confirmed increase raises the tax‑free personal allowance to £20,070.
This means that up to £20,070 of your annual income can be earned before Income Tax is applied.
For millions of basic rate taxpayers, this adjustment increases take‑home pay and reduces the portion of income subject to taxation.
When Does the New Allowance Apply
Tax changes typically take effect at the start of the new tax year in April.
If the £20,070 allowance has been confirmed for the upcoming tax year, it will apply from 6 April onward.
Your employer or pension provider should automatically update your tax code to reflect the new threshold.
You do not need to apply separately.
How Much Could You Save
The savings depend on your income level and tax band.
For example:
If you earn £25,000 per year, you will now pay Income Tax only on £4,930 instead of a larger taxable amount under the previous allowance.
If you earn £30,000 per year, a higher personal allowance reduces your taxable portion accordingly.
For basic rate taxpayers, even a few thousand pounds extra tax‑free can result in hundreds of pounds saved annually.
The exact saving depends on the difference between the old allowance and the new £20,070 threshold.
Who Benefits Most
The increase primarily benefits:
Lower‑income workers
Part‑time employees
Pensioners with modest additional income
Self‑employed individuals
Basic rate taxpayers
Higher earners also benefit, but those paying tax at the additional rate may see the personal allowance gradually reduced once income exceeds certain levels.
What About Pensioners
Many pensioners rely on the State Pension combined with private pension income.
If your total taxable income exceeds the personal allowance, you may pay Income Tax.
A rise to £20,070 means some pensioners with modest additional income may:
Pay less tax
Stop paying Income Tax entirely
Keep more of their retirement income
However, it’s important to remember that the State Pension itself is taxable, even though tax is not deducted at source.
How Income Tax Bands Work
Once income exceeds the personal allowance, it enters the basic rate band.
In England, Wales and Northern Ireland, the basic rate applies to income above the personal allowance up to a set limit.
Scotland operates different Income Tax bands under devolved powers.
The personal allowance generally applies UK‑wide, but overall tax liability may vary slightly depending on where you live.
What Happens to Your Tax Code
Your tax code reflects your personal allowance.
When the allowance rises, HMRC typically adjusts tax codes automatically.
For example, a change in allowance results in a new tax code issued to your employer.
You should receive a notice if your tax code changes.
It’s always wise to check your payslip after April to ensure the update has been applied correctly.
What About National Insurance
The personal allowance applies only to Income Tax.
National Insurance contributions have separate thresholds.
Even if you pay no Income Tax due to the higher allowance, you may still pay National Insurance depending on your earnings.
This is especially relevant for working individuals below higher tax bands.
Will Everyone Get the Full £20,070 Allowance
Not necessarily.
Your personal allowance may be reduced if:
Your income exceeds £100,000 per year
You have certain benefit adjustments
You have underpaid tax from previous years
For incomes above £100,000, the personal allowance gradually reduces by £1 for every £2 earned over that limit.
This means high earners may not receive the full allowance.
How This Affects Take‑Home Pay
An increased personal allowance effectively reduces the amount of your income that is taxed.
For example:
A basic rate taxpayer paying 20% Income Tax could save 20% of the increase amount.
If the allowance increased by £1,000, that would equate to £200 saved per year for a basic rate taxpayer.
Multiply that across millions of workers, and the impact becomes significant.
Why the Government Raises the Allowance
Governments may raise the personal allowance to:
Help households cope with inflation
Increase disposable income
Reduce the tax burden on lower earners
Stimulate consumer spending
However, raising the allowance also reduces tax revenue, so it must be balanced against public spending needs.
Does This Help Low Earners the Most
Raising the allowance can help low earners, but its impact depends on income level.
Those earning below £20,070 already pay no Income Tax, so they will not see additional savings.
Those earning just above the threshold benefit most proportionally.
Middle earners also benefit, though the impact becomes smaller as income rises relative to total earnings.
Example Scenario
Imagine someone earning £21,000 per year.
Under a £20,070 allowance, only £930 is taxable at the basic rate.
That results in significantly less tax compared to a lower allowance.
Now imagine someone earning £35,000 per year.
The increase still reduces taxable income, but the percentage impact is smaller compared to total income.
What Should You Do Now
If you are employed, your employer will update your payroll system automatically.
If you are self‑employed, the new allowance will apply when calculating your annual Self Assessment return.
If you receive pension income, check your annual tax code notice from HMRC to confirm the updated allowance.
It is always a good idea to review your tax code online through your HMRC account.
Could the Allowance Rise Again
Tax thresholds are reviewed during Budget statements.
Future changes depend on:
Economic conditions
Government policy
Public spending requirements
Inflation trends
While the rise to £20,070 is significant, future adjustments will depend on broader fiscal decisions.
Key Points to Remember
The personal allowance has risen to £20,070.
You pay Income Tax only on earnings above this threshold.
The change usually takes effect from April.
Most updates are automatic through payroll.
National Insurance thresholds are separate.
Why This Matters for Households
For families managing mortgage payments, rent, childcare costs and rising energy bills, even modest increases in take‑home pay can make a difference.
A higher personal allowance means:
More money stays in your pocket
Less income is taxed
Greater flexibility in monthly budgeting
Over a full year, the savings can add up meaningfully.
Final Thoughts
The confirmation of a £20,070 tax‑free personal allowance marks a notable shift in the UK tax landscape. While not everyone will see dramatic changes, millions of workers and pensioners stand to benefit from reduced Income Tax liability.
As the new tax year approaches, check your tax code, review your payslips and understand how the higher allowance applies to your income.
Clear understanding leads to better financial planning — and ensures you keep as much of your hard‑earned money as possible under the updated rules.