What is the purpose of the personal allowance in income tax?

The personal allowance in income tax is designed to determine the amount of income that individuals can earn before they start paying income tax. Essentially, it establishes a threshold of earnings that is tax-free, allowing individuals to retain a portion of their income without taxation. This mechanism serves to reduce the overall tax burden on lower to moderate-income taxpayers, ensuring that only income above this allowance is subject to income tax rates.

The other options do not accurately reflect the function of the personal allowance. Providing tax relief to businesses pertains to different tax strategies and credits that are specifically tailored to support enterprise operations, rather than individual taxpayers. Limiting the taxable income of higher earners relates more to higher tax rates and potential tax bands rather than personal allowances, which apply uniformly up to a specified limit. Calculating capital gains on property sales is a separate issue related to investment and asset taxation, distinct from the personal allowance applied to income tax.