New Income Tax Personal Allowance from £12,570 to £20,000 – What This Means for Your Paycheck

Of recent times, the information about the increase in the individual allowance of the income tax in the UK to PS20,000 has been beyond spread in the social media and other online forums. Not so, however, the truth is quite different. As a matter of fact this is not a claim made by any announcement of the government but it is a petition by the citizens, which has received a lot of therapeutic support in the society but the government has dismissed it formally.

and we will see how far this rumor went, and how the government acted on it, and how the poor people were affected in their pockets.

What is a Personal Allowance?

• UK In the UK, PC is the total income to which an individual is not subjected to income tax.
• As an illustration, a tax is not charged provided that your yearly income is not more than PS12,570.
• Tax will however be charged on the amount over and above this amount.
• This limit has been set by the government as PS12,570 since April 2021 and has resolved to maintain the freeze until 2028. This implies that it will not increase in the coming years.

what was the cause of the rumor?

One year later, the normal income tax-free threshold would be within the proposed change since the citizens have requested PS20,000 each as the government’s personal allowance benefit through a petition.

The support of millions of people was enlisted to this petition because it was supposed to bring relief to the lower and middle income brackets.

But the government turned this proposal down in October 2025.

The government explained that such high growth would lead to an annual cost of PS40 to PS50 billion on the government coffers and this is not manageable in the present economic times.

Thus, the argument that the government has raised the amount of tax free income limit to PS20,000, is totally untrue.

What is the meaning of the personal allowance freeze?

When they freeze a tax threshold, it does not imply that you will have a reduction in taxes, on the contrary, it has the opposite effect.

• This is called “Fiscal Drag.”
• The Effect of Fiscal Drag:
• More individuals are shifted to the tax bracket as inflation escalates and salaries of people marginally increase.
• Previously non taxpayers now start paying income tax and those who used to pay basic rate tax may be transferred to higher tax bracket.
• This is to imply- although your income will improve, your net income or take-home pay might go down due to the rise in the tax burden.

Example:

• Let’s say you make 25,000 pounds a year.
  In this scenario (with a 12,570 pound personal allowance):
• Taxable income = 25,000 pounds – 12,570 pounds = 12,430 pounds
• This is the general tax liability which in this case is around 2,486 pounds.

Now, by supposing personal exemption at 20,000 pounds:

• The taxable income will then be 25,000 – 20,000 = 5,000
• The tax imposed on this will be 1,000.
• This translates to a saving of about PS1,486 a year.
• However, this is only an assumption because the government has not yet decided to increase this.

How would this differ with personal allowance PS20,000?

And in case this suggestion were put into effect, it would benefit directly millions of taxpayers in UK.
We shall see what groups would be relieved:

• Low Earners: The low earners who make less than PS20,000 would not pay any income tax and hence they would not pay any income tax on all their earnings.
  This group would gain a lot of relief during the inflation and escalating costs.
• Basic Rate Taxpayers: The workers who earn PS25,000 or PS30,000 would save approximately PS1,000 to PS1,500 a year.
• Pensioners: The elderly pensioners would have a decreased tax amount which would enable them to get a little more cash in their monthly pension.
• Middle Class Families: They would get more relief during childcare, increased energy costs, and rent costs.
• All that is however a question of “if only” because the current government has been categorical that this is not financially viable.

The Government Case against Increasing Personal Allowances.

According to the government such a substantial amount of personal allowances would lower tax collection by a large margin.

Examples of areas used to spend this revenue include the NHS (healthcare), education, social welfare and defense.

In case this increase were done, the government would either need to:

• reclaim revenue on other taxation,
• or cut public services.
• Both of them are not favorable to the masses and hence the government turned down.

What can be expected next?

• As per the existing policy, the personal allowances will be kept at the same level up to April 2028.
• Nevertheless, in case a new government is elected in the future or, the economic situation gets better, it is possible to reconsider such a limit increase.
• Most economic analysts reckon that the additional taxation that the freeze would place on the middle income people may drag economic growth in the long run.
• Hence, this problem can take the center stage in the political agenda during the next elections.

Guidance to the general population.

• Know your taxes: Check your payslips and tax code on a regular basis.
• Save savings and pension planning: Design long term savings plans, remembering that the tax burden is on the rise.
• Monitor government announcements: Only official websites of Gov.uk or HMRC are to be trusted.
• Be cautious of fake news: Do not just accept any news in social media and unofficial blogs.

Conclusion

Overall, the government of the UK has not expressed any intention to raise PS12,570 Personal Allowance to PS20,000. This was just a petition and a demand claim based on the public demand which has finally been denied in October 2025.

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