Personal Tax Allowance: What It Is and How It Works

Your personal tax allowance is one of the most important figures in the UK tax system. It is the amount of income you can earn before income tax applies. Getting it wrong costs you money.

It applies whether you are employed, self-employed, retired, or earning from multiple sources. The standard personal tax allowance is £12,570, frozen since the 2021/22 tax year.

Following the 2025 Autumn Budget, the freeze is now expected to run until April 2031.

Rising wages mean more people are crossing income thresholds and facing higher tax bills. This can happen without any real increase in earnings.

This guide covers how the allowance works and what can reduce or increase it. It also explains how tax code errors lead to overpaying.

How the Personal Tax Allowance Works in Practice

The personal tax allowance reduces the portion of your income that HMRC can tax.

For most employed taxpayers it is applied through the PAYE system. Your employer deducts income tax each pay period without you needing to act.

If your total income is £20,000, only £7,430 is taxable. The first £12,570 is covered by your personal tax allowance.

The allowance covers all taxable income within a single tax year. This includes wages, self-employment profits, rental income, pension income, and most savings interest.

It cannot be carried forward or split across different tax years.

Income tax bands for 2025/26 — England, Wales and Northern Ireland:

• Personal Allowance: up to £12,570 — 0% tax
• Basic Rate: £12,571 to £50,270 — 20% tax
• Higher Rate: £50,271 to £125,140 — 40% tax
• Additional Rate: over £125,140 — 45% tax

Scotland operates different income tax bands above the personal tax allowance, set by the Scottish Government.

What Reduces Your Personal Tax Allowance

For most UK taxpayers the standard allowance applies in full. Above certain income levels it starts to reduce and eventually disappears.

The £100,000 Taper

Once your adjusted net income exceeds £100,000, your personal tax allowance reduces by £1 for every £2 earned above that threshold.

At £125,140, the allowance reaches zero.

This creates an effective marginal tax rate of 60% on income between £100,000 and £125,140.

You pay 40% income tax on each additional pound. You also lose tax-free allowance worth another 20% in relief.

Together, that is one of the steepest tax traps in the UK system.

Example: income of £110,000 exceeds the threshold by £10,000. The personal tax allowance falls by £5,000, from £12,570 to £7,570.

That narrowed allowance can mean a significantly higher tax bill than the salary figure alone suggests.

Unpaid Tax from Previous Years

If you owe income tax from a prior tax year, HMRC may reduce your current personal tax allowance to collect what is owed.

This appears in your tax code as a negative adjustment.

Checking your tax code via the HMRC app or personal tax account can reveal whether this reduction is active.

If the figure looks unfamiliar, contact HMRC to verify it before the tax year ends.

How Your Tax Code Reflects the Allowance

For employees and pension recipients, the personal tax allowance is communicated through a tax code.

The standard code for the full allowance is 1257L. The number 1257 represents £12,570 divided by 10. The letter L indicates a standard allowance.

Your tax code may differ if your allowance has been adjusted. A lower number suggests a reduced allowance.

The letter K indicates your taxable income exceeds your allowance, meaning tax applies to all of it.

HMRC sends new tax code notices at the start of each tax year and whenever a change is made to both you and your employer.

Reviewing yours takes a few minutes and can prevent months of over or underpayment. If you spot an error, HMRC can update the code and issue a correction.

Ways to Increase Your Personal Tax Allowance

Several allowances and reliefs can increase the income you keep free of tax. Not all are applied automatically — some require a claim.

The most commonly used allowances are:

• Marriage Allowance — transfers up to £1,260 of unused allowance from a lower-earning partner to a higher earner. This cuts the couple’s combined tax bill by up to £252 per year in 2026.
• Blind Person’s Allowance — adds to the standard allowance for those registered as blind or severely sight impaired. Unused amounts can transfer to a spouse or civil partner.
• Job Expense Relief — where HMRC accepts a claim for employment expenses, the approved amount is added to the personal tax allowance. This lowers your taxable income going forward.

Transferring allowance under Marriage Allowance means you personally have less tax-free income.

The net benefit only arises when the receiving partner uses the transferred amount to reduce their own liability.

Planning Around the £100,000 Income Threshold

Taxpayers with income close to or above £100,000 may be able to reduce their adjusted net income. Doing so can preserve some or all of their personal tax allowance.

Pension Contributions

Contributions to a registered pension scheme reduce adjusted net income pound for pound.

If your income is £105,000 and you contribute £5,000 to a pension, adjusted net income drops to £100,000. Your full personal tax allowance is restored.

Salary sacrifice arrangements achieve a similar result and may also reduce National Insurance contributions.

Within the taper zone, a £1 pension contribution can save up to 60p in tax. This makes pensions one of the most efficient planning tools for higher earners.

Gift Aid Donations

Gift Aid donations extend the basic rate band and can indirectly reduce adjusted net income.

The impact is generally smaller than pension contributions, but it is a legitimate and often overlooked option.

For anyone regularly earning above £100,000, speaking to a qualified tax adviser can be worthwhile.

The allowance taper, National Insurance, and pension reliefs interact in complex ways. A small change can sometimes produce a large tax saving.

Income Tax Rates in Scotland

Scottish taxpayers receive the same standard personal tax allowance of £12,570. The allowance is set by the UK Government and applies UK-wide.

The difference lies in the income tax rates above the allowance. Scotland operates a separate multi-band system set by the Scottish Government.

A rate of 45% applies on income between approximately £75,001 and £125,140 for Scottish taxpayers.

This makes the effective marginal rate in the taper zone steeper in Scotland than in the rest of the UK.

Scottish taxpayers near the £100,000 threshold may benefit more from pension contributions. Reducing adjusted net income is more impactful given the higher rates in that band.

Common Mistakes That Cost You Personal Tax Allowance

A number of errors appear regularly in personal tax allowance calculations. Many go unnoticed for months or even years.

The most common issues are:

• Emergency tax codes — a new job or one-off payment may trigger an emergency code that does not reflect your full personal tax allowance. This typically leads to overpayment.
• Multiple employments — with more than one PAYE income source, HMRC must know which employer applies the allowance. Applying it in the wrong place causes over or underpayment.
• Benefits in kind — taxable employer benefits reduce the personal tax allowance in your code. If the estimated value is wrong, your deductions are likely wrong too.
• Stale tax codes — HMRC does not always update codes promptly. A code from a previous year may still be active if you have not reviewed it.

Checking your tax code at the start of each new tax year stops these issues becoming a larger problem. Do the same after any change in circumstances.

What This Means for Your Tax Bill

Your personal tax allowance directly shapes how much income tax you pay each year.

The standard £12,570 allowance applies to most UK taxpayers. How much you benefit depends on your income, your tax code, and whether you are claiming all available reliefs.

For those near the £100,000 threshold, the taper zone deserves close attention. The 60% effective marginal rate is one of the least-understood features of the UK tax system.

Reviewing your tax code regularly and claiming the allowances you are entitled to can make a meaningful difference.

For further information on income tax and allowances, visit the income tax rebates and refunds section.

Personal Tax Allowance: Key Takeaways

• The standard personal tax allowance is £12,570 — the amount of income you can earn before income tax applies.
• The allowance has been frozen since 2021/22 and is set to remain at £12,570 until April 2031.
• Above £100,000, the allowance reduces by £1 for every £2 of income. It reaches zero at £125,140, creating a 60% effective marginal rate in that band.
• Scottish taxpayers receive the same personal tax allowance but face higher rates above it, making the taper zone more costly.
• Pension contributions and Gift Aid donations can reduce adjusted net income and help preserve the allowance for higher earners.
• Tax code errors — including emergency codes, multi-employment issues, and stale codes — can cause overpayment or underpayment.

Personal Tax Free Allowance FAQs

Q1: What is the personal tax allowance for 2026/27?

A: The standard personal tax allowance for 2026/27 is £12,570. This is the amount of income you can receive before income tax applies. The allowance has been frozen since 2021/22 and is set to remain until April 2031.

Q2: At what income does the personal tax allowance start to reduce?

A: The personal tax allowance begins to reduce once adjusted net income exceeds £100,000. For every £2 above this threshold, the allowance reduces by £1. It reaches zero at £125,140.

Q3: Can I increase my personal tax allowance?

A: Yes, in some circumstances. Marriage Allowance allows transfer of up to £1,260 from a lower-earning partner to a higher earner. Blind Person’s Allowance adds £3,130. Successful job expense relief claims may also increase the allowance in your tax code.

Q4: Is the personal tax allowance the same in Scotland?

A: The £12,570 allowance applies across the UK, including Scotland. Income tax rates above the allowance differ for Scottish taxpayers under Scottish Government bands. The effective marginal rate in the taper zone may be higher in Scotland.

Q5: How do I check my personal tax allowance is correct?

A: Check your allowance and tax code through the HMRC app or your online personal tax account at gov.uk. If it looks incorrect, contact HMRC to request a review. Where overpayment has occurred, a correction may result in a refund.