Personal Allowance is the amount of income you can earn each tax year before paying any Income Tax. It applies to most UK taxpayers and resets annually on 6 April, marking the start of the new tax year.

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For the 2025-2026 tax year, the standard Personal Allowance is £12,570 — meaning you can earn up to this amount tax-free.

 

Who Gets It?

You’re entitled to Personal Allowance if you’re:

• A UK resident

• A UK citizen or a citizen of a country with a double-taxation agreement

Even children and pensioners qualify. However, non-residents may only receive it under specific conditions — such as working for the UK government or being from a qualifying country.

 

When Is It Reduced?

If your adjusted net income exceeds £100,000, your Personal Allowance is reduced by £1 for every £2 over the threshold.

Example:
If your income is £120,000, you lose £10,000 of your allowance — leaving you with just £2,570.
Once your income hits £125,140, your Personal Allowance is completely removed.

This creates the infamous “60% tax trap”, where marginal tax rates spike due to the tapering effect.

 

How It Works in Practice

Your Personal Allowance is deducted from your total income before tax is calculated. For example:

• If you earn £30,000, only £17,430 is taxable (£30,000 – £12,570)

• You’ll pay 20% tax on that amount, which equals £3,486

If you're self-employed, the allowance is applied automatically when you file your Self Assessment return. If you're employed, it's reflected in your tax code — usually 1257L.

 

Related Allowances & Interactions

• Marriage Allowance: Transfer up to £1,260 of unused allowance to your spouse

• Blind Person’s Allowance: Adds £3,070 to your tax-free income

• Trading Allowance: First £1,000 of self-employment income is tax-free

• Property Allowance: First £1,000 of rental income is tax-free (unless using Rent-a-Room Scheme)

 

Common Pitfalls

• Emergency tax codes may temporarily ignore your allowance

• Claiming remittance basis (for non-doms) forfeits your Personal Allowance

• Double claiming (e.g. via employment and Self Assessment) can trigger HMRC corrections

 

Tax Year Reference: 2025-2026

• Tax year runs from 6 April 2025 to 5 April 2026

• Personal Allowance remains frozen at £12,570

• Thresholds and bands are unchanged until April 2028, increasing the risk of fiscal drag

 

Need Help Maximising Your Allowance?

We help self-employed individuals and small business owners:

• Understand their tax position

• Optimise allowances and reliefs

• Avoid the 60% trap and overpayments

• Stay compliant with HMRC

 

Contact us today for expert support and peace of mind.

Your Personal Allowance is free money — don’t let it go to waste. Let’s make every pound count.