07 Nov 2025 2 min read Personal Allowance

What Is the Personal Allowance and How Much Tax Do You Pay?

Understand the UK Personal Allowance — how much you can earn tax-free, when it reduces, and how to make the most of it.

The Personal Allowance is the amount of income you can earn each tax year without paying any income tax. For 2025/26, it is set at £12,570. This applies to most UK residents and is the starting point for all income tax calculations. Understanding it is fundamental to understanding your tax bill.

How the Personal Allowance Works

Income tax is only charged on income above the Personal Allowance. So if you earn £20,000 in a year, you pay 20% (the basic rate) on £7,430 — the amount above £12,570 — not on all £20,000. This gives a tax bill of £1,486, not £4,000.

The 2025/26 Freeze

The Personal Allowance has been frozen at £12,570 since April 2021 and will remain there until at least April 2028 under current government policy. In real terms (adjusted for inflation), this means the allowance is shrinking each year. As wages rise, more people are pulled into the basic and higher rate bands — a process economists call fiscal drag. It is estimated that around 3 million more people will become income taxpayers by 2028 compared to 2021 purely due to this freeze.

When the Personal Allowance Reduces

Your Personal Allowance reduces by £1 for every £2 your income exceeds £100,000. By the time your income reaches £125,140, your Personal Allowance is reduced to zero. This creates a particularly punishing effective tax rate between £100,000 and £125,140 — every £2 earned in this range loses £1 of allowance, causing that £1 of extra income to be taxed at 40% and effectively creating a 60% marginal rate.

Protecting Your Personal Allowance

If your income is between £100,000 and £125,140, pension contributions are a powerful tool. Pension contributions reduce your Adjusted Net Income — the figure HMRC uses to assess the allowance taper. Paying £10,000 into a pension when your gross income is £110,000 reduces adjusted net income to £100,000 and fully restores your Personal Allowance. The combined tax saving (income tax saving plus the restored allowance) can make the effective cost of that £10,000 pension contribution as low as £4,000.

Scottish Personal Allowance

The Personal Allowance amount of £12,570 applies in Scotland as well, but Scottish taxpayers pay different rates above this threshold. The taper between £100,000 and £125,140 also applies to Scottish taxpayers.

Marriage Allowance

If one spouse or civil partner has income below the Personal Allowance (i.e., they do not use all of their allowance), they can transfer up to £1,260 of it to their partner, provided the recipient is a basic rate taxpayer. This saves the recipient up to £252 in income tax per year. The transfer must be applied for through HMRC and can be backdated up to 4 years.

People who are registered blind or severely sight-impaired receive an additional allowance of £3,070 for 2025/26, on top of the standard Personal Allowance. If the blind person cannot use all of their allowance, the unused portion can be transferred to a spouse or civil partner.

Your Tax Code

HMRC communicates your Personal Allowance to your employer or pension provider through your tax code. The standard code for 2025/26 is 1257L, representing £12,570. Non-standard codes may apply if you have benefits in kind, additional untaxed income, or an outstanding tax debt. Check your tax code each year via HMRC's online account or the HMRC app — errors are not uncommon and can result in over- or under-payment of tax throughout the year.