Understanding personal tax allowance in the UK

Most UK taxpayers are entitled to a tax-free personal allowance, which resets every financial year. While most people are eligible for the standard allowance, factors such as total income, pension earnings, and tax code adjustments can impact your tax-free income. In this guide, we’ll explain the meaning of personal allowance, what the personal allowance amount is, who can claim it, and what happens if your income exceeds a certain threshold.

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The personal tax allowance is the amount of income you can earn in the UK before you start paying income tax. Everyone with a yearly income of below £100,000 receives the same standard personal tax allowance in the UK, and if your income exceeds £100,000, the personal allowance starts to gradually reduce before being removed completely. Your tax personal allowance is set at the beginning of the new financial year in April.

It’s worth noting that this threshold isn’t solely a PAYE personal allowance. Unlike National Insurance, which is only charged on earnings from work, income tax applies to most types of income, which could include your state pension, private pension, any taxable benefits you get, and any other income, for example, interest on savings or capital gains from investments or property.

In the UK, the income tax personal allowance is £12,570 for anyone with an income of less than £100,000 per year. If your income exceeds £100,000, your allowance gradually reduces. The personal tax allowance is completely removed if your income reaches a threshold of £125,140. The UK tax bands are as follows:

• Basic rate: You’ll pay 20% tax on all income over the personal allowance of £12,570, up to £50,270
• Higher rate: You’ll pay 40% tax on all income over £50,270, up to £125,140
• Additional rate: You’ll pay 45% tax on all income over £125,140

The personal tax allowance for 2025/26 is £12,570. It has been frozen at this level since the 2021/22 tax year (which runs from 6 April to 5 April), and the UK government has confirmed that it will stay at this level until at least April 2028 as part of a tax threshold freeze.

For the 2025/26 tax year (as in previous years), the standard personal tax allowance for pensioners in the UK is £12,570 (which is the same as for the general population).

In the past, pensioners aged 65 and over were eligible for a higher UK personal tax allowance, however, this was phased out in 2016. Like other taxpayers, if your income as a pensioner exceeds £100,000, your tax-free personal allowance will be reduced.

You may also have to pay income tax at a higher rate if you take some or all of your pension as a lump sum and it goes above your tax-free pension lump sum allowance.

Most people in the UK are eligible to claim a personal allowance, but there may be certain conditions and exceptions attached to this. In general, UK tax residents are eligible to claim the personal allowance, and this applies whether you earn income from PAYE employment, self-employment, or other taxable sources.

If you’re married or in a civil partnership, you may be eligible for the Marriage Allowance, which lets you transfer up to £1,260 of your income tax personal allowance to your partner if they earn less than the personal allowance limit and you’re not using all of yours.

You may also be able to increase your personal tax allowance if you have certain disabilities or conditions, for example, if you claim the Blind Person’s Allowance.

Yes, emergency tax codes may affect your tax-free personal allowance. In the UK, an emergency tax code may not reflect your full allowance before tax, meaning you could be taxed at a higher rate than usual. Emergency tax codes are typically used by HMRC when you start a new job or your pay details haven’t been updated. An emergency tax code could use a lower personal allowance or none at all, which would result in more tax being deducted from your pay. However, HMRC should update your tax code to reflect your full personal allowance once they have the correct information, potentially resulting in a refund if you’ve overpaid.

Your personal allowance is calculated based on your total income to determine how much of it is taxable. The tax bands that apply to England, Wales, and Northern Ireland are used to determine how much tax you’ll pay after that.

No, your standard personal tax allowance is separate from your personal savings allowance. Your savings allowance allows you to earn a certain amount of interest on your savings without paying tax. How much tax-free interest you can earn in a tax year will depend on whether you are a basic rate, higher rate, or additional rate taxpayer.

As explained above, everyone earning below £100,000 per year has the same standard personal tax allowance of £12,570. However, if you earn above £100,000, your personal income tax allowance begins to reduce (for every £2 of income above this threshold, the allowance is reduced by £1). The personal tax allowance disappears completely if your income exceeds £125,140.

As we’ve explored above, your UK personal tax allowance will be less than £12,570 if you earn more than £100,000.

Let’s look at an example of how your personal allowance amount would be reduced if this was the case.

John has an annual income of £110,000 per year. As John earns £10,000 more than the £100,000 limit, £10,000 would be divided in half to make £5,000 (because for every £2 earned above £100,000, your personal allowance reduces by £1). So, John’s personal income tax allowance is reduced by £5,000, meaning his final personal tax allowance is £7,570. This means John will only receive £7,570 of tax-free income, and the rest of his earnings will be taxed according to the basic rate (20%) and higher rate (40%) tax bands.

Keep in mind, however, that any taxable income between £100,000 and £125,140 falls into what’s known as the £100k tax trap, where the gradual loss of the personal allowance results in an effective tax rate of 60% on this portion of earnings.

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