Personal Allowance Explained

What is the Personal Allowance?

The Personal Allowance is your tax-free income threshold. For the 2025-26 tax year, the first £12,570 you earn is not subject to Income Tax. This figure has been frozen at £12,570 since April 2021 and is set to remain at this level until at least April 2028.

Your tax code reflects your Personal Allowance. The standard code 1257L means £12,570 tax-free (1257 x 10).

How it works

If you earn up to £12,570, you pay no Income Tax at all. Earnings between £12,570 and £50,270 are taxed at 20% (basic rate). Between £50,270 and £125,140, the rate is 40% (higher rate). Above £125,140, you pay 45% (additional rate).

There is a catch for higher earners. Once your income exceeds £100,000, your Personal Allowance is reduced by £1 for every £2 of income above that threshold. At £125,140, the allowance reaches zero. This creates an effective marginal rate of 60% on income between £100,000 and £125,140.

You can transfer 10% of your Personal Allowance (£1,260) to a spouse or civil partner through Marriage Allowance if one of you earns below £12,570.

Real example

Mark earns £110,000 per year. His Personal Allowance is reduced by £5,000 (half of the £10,000 above £100,000). So his tax-free amount drops to £7,570 instead of £12,570.

That extra £2,000 represents the 60% effective rate. On the £10,000 above £100,000, Mark pays 40% tax (£4,000) plus loses £5,000 of allowance (saving £2,000 at 40%), totalling an effective 60% rate.

Who does this affect?

Everyone resident in the UK for tax purposes receives a Personal Allowance. The taper above £100,000 affects around 900,000 taxpayers. People with non-standard tax codes (such as those with benefits in kind) may see their allowance adjusted, but the baseline figure of £12,570 applies to all UK taxpayers for 2025-26.

HMRC source

gov.uk/income-tax-rates shows the current Personal Allowance and all Income Tax bands for the tax year.