Allowances, deductions and tax credits compared

What the Personal Allowance, the Swedish grundavdrag, the Norwegian minstefradrag and the Dutch tax credits do, and why a credit is worth more than a deduction.

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Uppdaterad 17 October 2026

Three tools that lower tax

Governments use three tools to protect low incomes and reward work. An allowance is a fixed amount of income that is not taxed. A deduction is a cost, or an assumed cost, that you can subtract from income before tax. A credit is subtracted from the tax itself. The same level of relief is worth different amounts depending on the tool, and that explains why the five countries feel so different.

Allowances and deductions in Sweden, Norway and the UK

The United Kingdom has a single Personal Allowance of 12,570 GBP. Everyone with a standard code gets it, and the relief is worth 20 % of it to a basic-rate taxpayer and 40 % to a higher-rate taxpayer, until it is withdrawn between 100,000 and 125,140 GBP.

Norway gives two: a personal allowance of 114,540 NOK and a standard deduction (minstefradrag) of 46 % of salary, capped at 95,700 NOK, which reaches the cap at a salary of about 208,000 NOK. Both reduce ordinary income that is taxed at 22 %, but not the bracket tax, which applies to the full salary.

Sweden's basic allowance (grundavdrag) depends on income. It is 42.3 % of the price base amount (59,200 SEK in 2026) for low incomes, peaks at 77 % of it between 2.72 and 3.11 price base amounts, and falls to 29.3 % for incomes above 7.88 price base amounts, so high earners get a smaller allowance.

Germany: lump sums and the Vorsorgepauschale

The German tariff has a basic allowance of 12,348 EUR in 2026 that is built into the formula, so tax is zero below that taxable income. Before the tariff is applied, the payroll calculation subtracts an employee lump sum of 1,230 EUR, a special expenses lump sum of 36 EUR and an allowance for pension and insurance contributions called the Vorsorgepauschale. For a salary of 30,000 EUR the Vorsorgepauschale is 6,045 EUR and taxable income is 22,689 EUR.

Credits in the Netherlands and Sweden

The Netherlands has no income allowance. Instead it gives a general tax credit of up to 3,115 EUR and a labour tax credit of up to 5,685 EUR. Both are subtracted from the box 1 tax, and neither can reduce it below zero in the estimate. The general credit starts to shrink at 29,736 EUR and the labour credit at 45,592 EUR.

Sweden gives credits too. The earned income tax credit (jobbskatteavdrag) and a tax reduction for earned income of up to 1,500 SEK reduce municipal tax, and the 7 % general pension fee is returned as a credit. The breakdown on the Swedish page shows each one as a negative line.

Why a credit is worth more than a deduction

A deduction of 1,000 reduces tax by the rate that applies to your top slice, for instance 200 at a rate of 20 % or 400 at a rate of 40 %. A credit of 1,000 reduces tax by exactly 1,000 whatever your income. That is why countries that want to help low earners use credits, and why credits that phase out raise marginal rates, as the guide on marginal and effective tax rates explains.

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