Personal Tax Allowance 2026/27: The Frozen Threshold, the 60% Trap, and How to Keep More of Your Income

By Costanza · Published 4 September 2025 · Updated 4 September 2025

Rules verified 4 Sept 2025

TL;DR

The standard Personal Allowance is frozen at £12,570 for 2026/27 — and the freeze has been extended to April 2031, not 2028 as previously announced. This means fiscal drag will keep pulling more income into tax and into the 40% band for years. If your adjusted net income exceeds £100,000, your allowance tapers away at £1 for every £2 earned, producing an effective 60% income tax rate (62% including NI) on the £100,000–£125,140 band, with zero allowance above £125,140. You can reduce adjusted net income — and reclaim your full allowance — through pension contributions and Gift Aid donations. Marriage Allowance lets couples transfer £1,260 of unused allowance (saving up to £252/year), and the Blind Person's Allowance adds £3,250 on top of the standard allowance for 2026/27.

The Personal Allowance is the single most important number in the UK tax system. It’s the amount you can earn each year before any Income Tax is due — and for 2026/27, it’s £12,570.

That figure hasn’t moved since April 2021, and it now won’t move until April 2031. Whilst wages have risen, the threshold hasn’t. The result is fiscal drag: a silent tax rise that pulls more of your income into tax and into higher bands every year, without the government ever announcing a rate increase.

This guide covers the 2026/27 thresholds, the £100,000 taper trap that produces an effective 60% tax rate, and the allowances and strategies that can help you keep more of what you earn.

What Is the Personal Allowance?

The Personal Allowance is the amount of income you can receive each tax year before paying any Income Tax. For 2026/27, it’s £12,570 — the same figure it’s been at since 6 April 2021.

It applies to all forms of UK taxable income: employment salary, self-employment profits, pension income, rental income, taxable savings interest, and dividends. It’s applied to your income first, so it effectively saves you tax at your marginal rate — £2,514 if you’re a basic-rate taxpayer, £5,028 if you’re a higher-rate taxpayer.

According to HMRC’s official guidance: “The Personal Allowance (PA) and basic rate limit will be fixed at their current levels up to and including 2027 to 2028 tax year.”

Who gets it

Most UK residents receive the Personal Allowance automatically. Whether you’re a sole trader, a company director, or a side-hustler, that first £12,570 is generally tax-free. The main exceptions:

Adjusted net income over £100,000 — your allowance tapers away (see below)
Non-residents — you may not be entitled to it, depending on your circumstances
Certain tax-year election cases — rare and situation-specific

The Freeze: Fiscal Drag Explained

The Personal Allowance was frozen at £12,570 in April 2021. The original freeze was due to end in April 2026, but it has been extended twice:

Announcement	Freeze extended to
Spring Budget 2021	April 2026
Autumn Statement 2022	April 2028
Autumn Budget 2025	April 2031

The basic rate limit (£37,700) is frozen over the same period. This means the higher-rate threshold — the point at which you start paying 40% — stays at £50,270 (£12,570 + £37,700) until April 2031.

Why this is a tax rise

When thresholds stay still but wages rise, two things happen:

More of your income is taxed. A pay rise that would once have fallen within your tax-free allowance is now fully taxable.
More people are pulled into higher bands. The higher-rate threshold is fixed at £50,270, so anyone whose salary rises above that level starts paying 40% — even if their real-terms income hasn’t increased.

According to SalaryTax’s analysis, the real-terms value of the Personal Allowance has fallen by roughly 20% across the freeze period, because inflation has eroded what £12,570 actually buys.

This is fiscal drag. It’s not announced as a tax rise, and it doesn’t appear in any Budget headline — but it pulls billions into the Treasury each year as wages drift above frozen thresholds.

The £100,000 Taper Trap

If your adjusted net income exceeds £100,000, your Personal Allowance starts to disappear. This is the Personal Allowance taper, and it produces one of the most punishing marginal tax rates in the UK system.

How the taper works

For every £2 of adjusted net income above £100,000, you lose £1 of Personal Allowance. The taper runs until your income reaches £125,140, at which point your allowance is zero.

Adjusted net income	Personal Allowance	Effective allowance
£100,000	£12,570	Full allowance
£110,000	£7,570	Reduced by £5,000
£120,000	£2,570	Reduced by £10,000
£125,140	£0	Fully withdrawn

The effective 60% tax rate

Between £100,000 and £125,140, you’re paying 40% higher-rate tax on the income in that band plus losing £1 of tax-free allowance for every £2 earned. Losing £1 of allowance means another £1 of your income becomes taxable at 40% — effectively another 20% on top of the 40%.

The combined effect is an effective Income Tax rate of 60% on income in that band. For employees, add the 2% employee National Insurance and the combined marginal rate is 62%. For sole traders paying Class 4 NICs at 6%, the combined figure is higher still.

This means that on the next £1,000 earned between £100,000 and £125,140, an employee keeps just £380. The Treasury takes £620.

What “adjusted net income” means

The taper is based on adjusted net income, not gross salary. Adjusted net income is:

Total taxable income (PAYE salary, self-employment profits, rental income, dividends, savings interest, pension income, etc.)

Minus:

Personal pension contributions (relieved at source)
Gift Aid charity donations
Self-employed trading losses (if applicable)

This is the same figure used for the High Income Child Benefit Charge and the Personal Allowance taper. Reducing it is the key to escaping the trap.

Strategies to Reclaim Your Allowance

You don’t have to just accept the 60% rate. The lever is adjusted net income — if you can pull it below £100,000, you restore some or all of your Personal Allowance.

1. Increase pension contributions

Personal pension contributions are deducted from your adjusted net income. If your income is £110,000 and you contribute £10,000 to a personal pension, your adjusted net income drops to £100,000 — and you keep your full Personal Allowance.

You also get tax relief on the pension contribution itself (at your marginal rate, with the higher-rate relief claimed via Self Assessment), and the money grows tax-free inside the pension until withdrawal. For higher-rate taxpayers caught in the taper, this is the single most effective strategy.

The pension annual allowance for 2026/27 is £60,000 (tapered for very high earners with income over £260,000), and you can carry forward unused allowance from the previous three tax years. For the full mechanics — how to claim higher-rate relief, carry forward, salary sacrifice vs personal contributions, and the lifetime allowance abolition — see our pension contributions and Self Assessment guide.

2. Make Gift Aid donations

Charitable donations made under Gift Aid also reduce your adjusted net income. A £1,000 donation reduces your adjusted net income by £1,000 (the donation is grossed up by 25% for the charity, and the gross amount is what’s deducted from your income calculation).

3. Time your income

If you’re self-employed or have control over when you take income (e.g., as a company director via dividends or salary), you can spread income across tax years to stay below the £100,000 threshold. This requires planning ahead — once the tax year ends, the opportunity is gone.

4. Use salary sacrifice

If you’re employed and your employer offers salary sacrifice, you can exchange salary for pension contributions, cycle-to-work schemes, or other benefits. This reduces your gross salary (and therefore your adjusted net income) before it hits your tax code.

Boosting Your Tax-Free Threshold

Beyond the standard Personal Allowance, there are several ways to extend your tax-free income.

Marriage Allowance

If you’re married or in a civil partnership, one partner can transfer £1,260 of their unused Personal Allowance to the other.

The rules:

The transferor must earn below the Personal Allowance (£12,570)
The recipient must be a basic-rate taxpayer (income below £50,270 in 2026/27)
You can’t claim if the recipient is a higher or additional-rate taxpayer
Both partners must have been born after 6 April 1935 (the Married Couple’s Allowance applies to older couples instead)

The saving: £1,260 × 20% = £252/year.

You can backdate claims for up to four previous tax years, so if you’ve been eligible and haven’t claimed, you could be owed up to £1,260 in total (£252 × 4 years, plus the current year). Claim via GOV.UK.

For 2026/27, the Blind Person’s Allowance (BPA) is £3,250 — up from £3,130 in 2025/26, following The Income Tax (Indexation of Blind Person’s Allowance and Married Couple’s Allowance) Order 2026. Unlike the Personal Allowance, the BPA is uprated each year in line with CPI.

It’s added on top of the standard Personal Allowance, giving qualifying claimants a total tax-free threshold of £15,820 (£12,570 + £3,250).

Who qualifies:

In England and Wales: registered as severely sight-impaired (blind) on a local authority register
In Scotland and Northern Ireland: unable to perform any work for which eyesight is essential (certified by an eye specialist)

Unused BPA can be transferred to a spouse or civil partner, similar to Marriage Allowance but without the basic-rate restriction.

Trading Allowance and Property Allowance

Each is £1,000/year and applies to specific types of income:

Trading Allowance — covers self-employment, casual, and miscellaneous income (side hustles, gig economy work, hobby income that’s become commercial)
Property Allowance — covers income from land or property (renting a driveway, a storage space, or a small rental)

If your gross income from either source is £1,000 or below, you generally don’t need to tell HMRC. According to HMRC’s guidance: “If your annual gross property income is £1,000 or less, from one or more property businesses you will not have to tell HMRC or declare this income on a tax return.”

For trading income, the position is slightly more nuanced — you “may not have to tell HMRC,” but there are circumstances where you must register for Self Assessment even under £1,000 (e.g., if you can’t use the allowance, or if you have other income that requires a return).

Above £1,000, you must declare the income. You then choose: claim the allowance (and deduct no expenses) or deduct actual expenses (and forgo the allowance). You can’t do both. The allowance is once across all trades, not once per trade — see our MTD multiple trades guide for how this interacts with multiple income sources.

Other allowances worth knowing

Allowance	2026/27 amount	Notes
Dividend Allowance	£500	Tax-free dividends on top of PA
Personal Savings Allowance	£1,000 (basic) / £500 (higher) / £0 (additional)	Tax-free savings interest
Starting Rate for Savings	£5,000	Tapered by non-savings income
Rent-a-Room Relief	£7,500	Tax-free income from letting a furnished room in your home
ISA Allowance	£20,000	Use-it-or-lose-it; all returns tax-free
Capital Gains annual exempt amount	£3,000	Tax-free gains per year
Pension Annual Allowance	£60,000	Tapered for income over £260,000

The Bottom Line

The Personal Allowance is £12,570 for 2026/27 — frozen since April 2021 and now extended to April 2031.
Fiscal drag is a silent tax rise. Frozen thresholds mean pay rises pull more income into tax and into the 40% band, even though your real-terms income may not have increased.
The £100,000 taper produces a 60% effective Income Tax rate (62% including employee NI) on income between £100,000 and £125,140. Your allowance is fully withdrawn at £125,140.
Pension contributions and Gift Aid donations reduce adjusted net income — pulling it below £100,000 can restore your full Personal Allowance.
Marriage Allowance saves up to £252/year by transferring £1,260 of unused allowance between spouses. You can backdate claims for up to four years.
The Blind Person’s Allowance is £3,250 for 2026/27 — added on top of the standard allowance, giving a total tax-free threshold of £15,820.
The £1,000 Trading and Property Allowances cover small side hustles and micro-rental income. Above £1,000, you must declare the income and choose between the allowance or actual expenses.
The freeze is the biggest tax story of the decade. With the Personal Allowance and higher-rate threshold both fixed until 2031, planning around adjusted net income matters more than ever.

For more plain-English explanations of HMRC terms, see our full jargon buster. If you’re caught by the £100,000 taper and the High Income Child Benefit Charge, see our HICBC guide. For how the Personal Allowance interacts with self-employment and MTD, see our first-year self-employed checklist.

Back to Jargon · Back to Guide

Frequently Asked Questions

What is the standard Personal Allowance for the 2026/27 tax year?

£12,570. This is the amount of income you can earn before paying any Income Tax. It has been frozen at this level since April 2021 and the freeze has been extended to April 2031 (announced at the Autumn Budget 2025), meaning no increase for ten consecutive tax years.

When does the Personal Allowance freeze end?

April 2031. The original freeze, announced in the Spring Budget 2021, ran to April 2026. It was extended to April 2028 at the Autumn Statement 2022, and then extended again to April 2031 at the Autumn Budget 2025. The basic rate limit (£37,700) is frozen over the same period.

Can I lose my Personal Allowance if I earn too much?

Yes. Once your adjusted net income exceeds £100,000, your allowance tapers by £1 for every £2 you earn above that threshold. By the time your income reaches £125,140, your allowance is zero — meaning every pound from £0 upwards is taxable. This produces an effective 60% Income Tax rate on the £100,000–£125,140 band (62% including the 2% employee NI for employees).

What is the effective tax rate between £100,000 and £125,140?

60% for Income Tax alone, or 62% including the 2% employee National Insurance. You pay 40% higher-rate tax on the income in that band, plus you lose £1 of tax-free allowance for every £2 earned — which is effectively another 20% on top. For sole traders paying Class 4 NICs at 6%, the combined figure is different. This is known as the Personal Allowance taper or the '60% tax trap'.

How can I reclaim my Personal Allowance if I earn over £100,000?

Reduce your adjusted net income below £100,000. The two main routes are increasing personal pension contributions (which are deducted from your adjusted net income) and making Gift Aid charitable donations. Both pull your adjusted net income figure down, which can restore some or all of your tapered allowance. The pension route has the added benefit of tax relief on the contribution itself.

How does Marriage Allowance work?

If you're married or in a civil partnership, one partner can transfer £1,260 of their unused Personal Allowance to the other. The recipient must be a basic-rate taxpayer (income below £50,270 in 2026/27), and the transferor must earn below the Personal Allowance (£12,570). The saving is up to £252/year (£1,260 × 20%). You can backdate claims for up to four previous tax years.

Can Marriage Allowance be claimed if my spouse doesn't work?

Yes. If your spouse has no income or income below £12,570, they have their full Personal Allowance unused and can transfer £1,260 of it to you. As long as you're a basic-rate taxpayer (not higher or additional rate), you benefit from the full £252 reduction in your tax bill.

What is the Blind Person's Allowance for 2026/27?

£3,250 for 2026/27, up from £3,130 in 2025/26. It's an additional tax-free allowance on top of the standard £12,570, giving qualifying claimants a total tax-free threshold of £15,820. You qualify if you're registered as severely sight-impaired (blind) on a local authority register in England and Wales, or if you're unable to perform any work for which eyesight is essential in Scotland and Northern Ireland. Unused BPA can be transferred to a spouse or civil partner.

What is fiscal drag and how does it affect my Personal Allowance?

Fiscal drag is the effect of tax thresholds staying frozen while wages and prices rise. Because the Personal Allowance has been fixed at £12,570 since April 2021, pay rises that would once have stayed tax-free are now fully taxable, and more people are pulled into the 40% higher-rate band each year. The real-terms value of the allowance has fallen by roughly 20% across the freeze period.

Do I still get a Personal Allowance if I am self-employed?

Yes. Self-employed individuals are entitled to the same £12,570 Personal Allowance as everyone else. It's applied against your total income — self-employment profits, PAYE earnings, property income, dividends, etc. — with the same £100,000 taper applying to adjusted net income. You claim it automatically through your Self Assessment return.

What are the Trading Allowance and Property Allowance?

Each is £1,000/year. The Trading Allowance covers self-employment, casual, and miscellaneous income (side hustles, gig economy work, hobby income). The Property Allowance covers income from land or property (renting a driveway, a storage space, or a small rental). If your gross income from either source is £1,000 or below, you generally don't need to tell HMRC. Above £1,000, you must declare it — either claim the allowance (and no expenses) or deduct actual expenses (and forgo the allowance). You can't do both.

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