The Personal Allowance is the amount of income every UK resident can receive each year before paying any Income Tax. For 2026/27 it is £12,570 — frozen at this level since April 2021 and due to remain frozen until 2030/31. This guide explains how the allowance works, when it is reduced, and the tax planning strategies around it.
What is the Personal Allowance?
The Personal Allowance is a tax-free amount you receive automatically as a UK resident taxpayer. You do not need to claim it — it is applied to your income each year through your tax code (if you are employed) or through your Self Assessment return (if you are self-employed or have other income). Income up to £12,570 is taxed at 0%; income above this figure is taxed at the relevant Income Tax rate band.
The freeze since 2021 has the effect of gradually increasing the tax take from the nation as a whole. As wages rise with inflation each year, more people pay tax for the first time, and more people enter higher tax bands, even though the rates themselves have not changed. HMRC estimates this "fiscal drag" will raise billions of additional revenue each year through the freeze period.
How the Personal Allowance is applied to income
HMRC stacks different income types in a specific order, applying the Personal Allowance (and any other allowances) to income in this sequence:
- Non-savings income: employment, self-employment, pension, and rental income
- Savings income: bank interest and similar
- Dividend income: dividends from shares
This order matters because different types of income are taxed at different rates. By applying the Personal Allowance first to non-savings income, HMRC generally ensures the lowest-taxed income types benefit from the allowance first — though in practice, for most people with only employment or business income, the distinction is academic.
Example: A sole trader earns £18,000 profit and £2,000 in bank interest. The first £12,570 of trading income is covered by the Personal Allowance (tax-free). The remaining £5,430 of trading income is taxed at 20%. The £2,000 savings income then sits within the 20% basic rate band and may attract the Personal Savings Allowance of £1,000 (free) with the remaining £1,000 taxed at 20%.
Tax code and the Personal Allowance
For employees, the Personal Allowance is expressed through your PAYE tax code. The standard code for 2026/27 is 1257L. The number (1257) represents the allowance with the last digit removed — so 1257 corresponds to £12,570. Your employer uses this to calculate how much of your monthly or weekly pay is tax-free before deducting Income Tax.
If your tax code differs from 1257L, it reflects a modification to your standard Personal Allowance:
- A lower number (for example, 800L) means you have a reduced allowance — perhaps because you have benefits in kind such as a company car
- A higher number (for example, 1400L) means you have extra tax-free income — perhaps because you carry excess allowances from a previous year
- A K code means you have more taxable benefits than your allowance can cover — your employer deducts extra tax to account for this
Check your current tax code through your HMRC Personal Tax Account at gov.uk. Incorrect tax codes can result in underpayment or overpayment throughout the year.
When the Personal Allowance is reduced
The Personal Allowance begins to reduce once your adjusted net income exceeds £100,000. For every £2 you earn above £100,000, £1 of Personal Allowance is removed. The allowance is completely withdrawn at £125,140.
| Adjusted net income | Personal Allowance | Reduction |
|---|---|---|
| Up to £100,000 | £12,570 (full) | None |
| £105,000 | £10,070 | £2,500 lost |
| £110,000 | £7,570 | £5,000 lost |
| £115,000 | £5,070 | £7,500 lost |
| £120,000 | £2,570 | £10,000 lost |
| £125,140 and above | £0 | £12,570 fully withdrawn |
Adjusted net income is your total income minus allowable deductions — primarily Gift Aid donations and pension contributions. This distinction is important for planning (see below).
The 60% effective marginal rate trap
Between £100,000 and £125,140, the effective marginal rate of income tax is 60%. This arises from the combined effect of two things happening simultaneously:
- Each £1 of income above £100,000 is taxed at the higher rate of 40%
- Each £2 of income above £100,000 removes £1 of Personal Allowance — that withdrawn allowance is also taxed at 40%
Together, for every £2 of income in this range: £2 × 40% = £0.80 of income tax, plus £1 of allowance removed × 40% = £0.40 of additional tax. Total tax on £2 of income = £1.20. Marginal rate = £1.20 ÷ £2 = 60%.
This is a higher effective rate than the 45% additional rate that applies to income above £125,140 — a counterintuitive but very real distortion in the tax system. High earners in the £100,000 to £125,140 band face the steepest tax rate of any income bracket in the UK.
Strategies to protect the Personal Allowance
Because the reduction in the Personal Allowance is based on adjusted net income (not gross income), you can reduce your adjusted net income below £100,000 and restore all or part of your Personal Allowance through:
Pension contributions
The most powerful tool. Contributions to a registered pension scheme (personal contributions, not employer contributions) reduce your adjusted net income. For example, if you earn £115,000 and make a pension contribution of £15,000, your adjusted net income falls to £100,000 and your full £12,570 Personal Allowance is restored. The effective tax relief on this contribution is approximately 60%.
Gift Aid donations
Donations to charity under Gift Aid are deducted from your adjusted net income before the taper is applied. This is particularly beneficial for higher earners wanting to make charitable donations, as the effective relief rate within the £100,000 to £125,140 band is 60%.
Salary sacrifice
If your employer offers salary sacrifice arrangements (additional pension contributions, electric car, childcare), these reduce your gross salary before income tax and NI — and therefore reduce your adjusted net income for Personal Allowance purposes.
Marriage Allowance
Married couples and civil partners can use the Marriage Allowance to transfer £1,260 of the lower earner's Personal Allowance to the higher earner. This reduces the higher earner's tax bill by up to £252 per year.
To qualify: the lower-earning spouse must have income below their Personal Allowance (earning less than £12,570), and the higher-earning spouse must be a basic-rate taxpayer (income between £12,570 and £50,270). You cannot use the Marriage Allowance if either partner pays tax at the higher or additional rate.
Apply online through HMRC at gov.uk. You can backdate the claim for up to four tax years, potentially recovering up to £1,008 in tax.
Blind Person's Allowance
If you are registered blind (or severely sight-impaired) with a local authority in England or Wales, or are certified by the NHS in Scotland and Northern Ireland, you qualify for an additional Blind Person's Allowance of £3,070 for 2026/27. This is added to your Personal Allowance, giving a total tax-free amount of £15,640.
If you are married or in a civil partnership and cannot use the full Blind Person's Allowance (because your income is insufficient), the unused portion can be transferred to your spouse or civil partner. Claim through HMRC by phone or through your Personal Tax Account.
Personal Allowance for non-UK residents
Non-UK residents are generally entitled to the UK Personal Allowance if they are: a citizen of the European Economic Area, a UK national, a UK government employee or Crown servant, or resident in a country with a tax treaty with the UK that provides for the allowance. Non-residents who do not meet these conditions are not entitled to the Personal Allowance and pay UK Income Tax from the first pound of UK income.
Key takeaways
- The Personal Allowance is £12,570 for 2026/27 — frozen until 2030/31, creating fiscal drag as wages rise.
- The allowance tapers by £1 for every £2 of adjusted net income above £100,000, creating an effective 60% marginal tax rate between £100,000 and £125,140.
- Pension contributions and Gift Aid donations reduce adjusted net income and can restore the Personal Allowance for those earning between £100,000 and £125,140.
- Married couples and civil partners (where one earns below £12,570) can use the Marriage Allowance to transfer £1,260, saving up to £252 per year.
- Your tax code (typically 1257L for 2026/27) expresses your Personal Allowance to your employer through PAYE.
Frequently asked questions
What is the Personal Allowance for 2026/27?
The Personal Allowance is £12,570 for 2026/27. This is unchanged from 2025/26 and is frozen at this level until at least 2030/31. Income up to £12,570 is tax-free. The basic rate of 20% applies on income between £12,571 and £50,270, the higher rate of 40% between £50,271 and £125,140, and the additional rate of 45% above £125,140.
Can I have more than one Personal Allowance?
No. Each individual has one Personal Allowance of £12,570. However, certain additional allowances can supplement it — the Marriage Allowance allows a transfer of up to £1,260 between spouses. The Blind Person's Allowance adds £3,070. These are in addition to the standard allowance, not separate ones. The Trading Allowance (£1,000) and Property Allowance (£1,000) are also available but are separate reliefs, not additional Personal Allowances.
Does the Personal Allowance apply to all types of income?
The Personal Allowance is set against income in a specific order: non-savings income first (earnings, self-employment, pensions, rental), then savings income, then dividends. It applies to all taxable income types, but the order of application affects how much of the allowance is used against each type. Savings and dividends also have their own separate allowances (the Personal Savings Allowance and Dividend Allowance) that are distinct from the Personal Allowance.
What happens to my Personal Allowance if I have two jobs?
If you have two jobs, HMRC allocates the Personal Allowance to one employer's payroll (usually the main job). Your second employer is instructed to tax you at the basic rate (or higher) from the first pound, using a BR or D0 tax code. HMRC can also split the allowance across both payrolls if you request this. At the end of the year, your total tax is reconciled and any overpayment or underpayment is adjusted.
Can I carry forward any unused Personal Allowance?
No. The Personal Allowance cannot be carried forward or carried back. If your income is below £12,570 in one tax year, the unused allowance is simply lost — you cannot add it to the following year's allowance. This is why using ISAs, pension contributions, or other tax-efficient vehicles to generate income is important — income sheltered there does not consume your Personal Allowance.