- The standard personal allowance for 2026/27 is £12,570, and it’s frozen until 2031.
- Your allowance shrinks by £1 for every £2 you earn above £100,000, disappearing entirely at £125,140.
- Marriage allowance lets a lower earner transfer £1,260 to their partner, cutting their tax bill by up to £252 a year.
Your personal tax allowance is £12,570 for the 2026/27 tax year, which is the amount you can earn before Income Tax kicks in.
That figure’s been frozen since 2021 and is set to stay put until 2031. So while your allowance looks stable on paper, rising wages mean more of your income creeps into taxable territory each year.
The tricky bits are what happens above £100,000, how couples can share unused allowance, and how it all plays out if you pay yourself through a company. Sleek’s accounting services can take that off your plate entirely.
What is the personal tax allowance?
The personal tax allowance is the slice of income you can earn each year without paying any Income Tax, set at £12,570 for 2026/27.
It applies to most kinds of taxable income: your salary, self-employed profits, pension income, and rental profits. Earn below £12,570 in the year and you owe no Income Tax at all.
Go above it and you only pay tax on the amount over the threshold, not your whole income. That’s the part people most often get wrong.
Most employees get the allowance automatically through their tax code, usually 1257L. The numbers in that code are just your £12,570 allowance with the last digit knocked off.
How does the £100,000 taper work?
Once your adjusted net income passes £100,000, your personal allowance starts to shrink, and it’s gone completely by £125,140.
The mechanism is simple but brutal. For every £2 you earn above £100,000, you lose £1 of allowance. So at £110,000 you’ve lost £5,000 of it; at £125,140 there’s nothing left.
Why this creates a 60% tax trap
Here’s the sting. In that £100,000 to £125,140 band, you’re paying 40% on the income itself and losing tax-free allowance at the same time.
The combined effect is an effective tax rate of around 60% on that slice of earnings. A lot of higher earners hit it without realising.
A pension contribution that pulls your adjusted net income back under £100,000 restores the lost allowance, which is one of the most efficient moves available in that band.
If your income sits near this line, it’s worth reading up on the 40% tax bracket to see how the higher-rate threshold interacts with the taper.
What is the marriage allowance?
Marriage allowance lets a lower-earning spouse or civil partner transfer £1,260 of unused personal allowance to their partner, worth up to £252 off the partner’s tax bill each year.
It only works under specific conditions:
- One partner earns below the £12,570 personal allowance, so they aren’t using all of it.
- The receiving partner is a basic-rate taxpayer (income roughly £12,571 to £50,270).
- You’re married or in a civil partnership. Living together doesn’t count.
You can also backdate a claim up to four tax years if you were eligible but never applied, which can add up to a useful lump sum.
For the full mechanics and how to apply, see our guide to the marriage allowance transfer.
How does the allowance work with dividends and director salary?
Your personal allowance covers salary and dividends together, and how you split your pay decides how much of it you actually use.
Many company directors pay themselves a modest salary up to the personal allowance, then take the rest as dividends. The salary uses your £12,570 allowance; dividends sitting inside the allowance are also covered by it.
On top of that, dividends have their own separate £500 dividend allowance for 2026/27, which sits above the personal allowance. Note that dividend tax rates rose by 2% for basic and higher-rate taxpayers this year, so the sums are tighter than they were.
Getting the salary and dividend mix right is genuinely fiddly, and the wrong split can waste allowance or trigger avoidable tax.
Our breakdown of tax on dividends covers the rates in detail, and if you’re self-employed the UK tax brackets for freelancers guide shows how the allowance stacks with the income bands.
How do I check I’m on the right tax code?
Your tax code tells your employer or pension provider how much allowance to apply, and the standard one for a full allowance is 1257L.
If your code’s wrong, you could be paying too much tax month after month, or building up an unexpected bill. A few common signs something’s off:
- A code like 0T, which applies no personal allowance at all.
- A code ending in something other than L when your situation is straightforward.
- A sudden change after starting a new job or a second income.
You can check your code on your payslip, your P60, or through your HMRC online account. If it looks wrong, HMRC can correct it and refund any overpayment.
A code with no allowance is a frequent culprit, so our explainer on tax code 0T explained is worth a look if that’s what you’re seeing.
How Sleek helps with your personal tax allowance
Allowances change most years, the taper catches people out, and the salary-versus-dividend question rarely has one clean answer. Missing any of it usually means paying more tax than you need to.
Sleek keeps track of the current figures, applies every allowance you’re entitled to, and makes sure your pay is structured to use them properly. That’s the difference between guessing and knowing.
Disclaimer: The preceding information is not legal advice. This content is aimed to provide general guidance. For more formal or legal advice, contact Sleek directly.
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FAQs on personal tax allowance
Does everyone get the full personal allowance?
No. Most people get the full £12,570, but it tapers away once your adjusted net income tops £100,000, vanishing entirely at £125,140. A small number of people also get a larger allowance through Blind Person’s Allowance, which adds £3,250 on top for 2026/27. Your allowance can also be reduced if you owe tax from a previous year.
Is my ISA interest counted against my personal allowance?
No. Interest earned inside an ISA is tax-free and sits completely outside the Income Tax system, so it doesn’t use up any of your personal allowance. That’s different from most income, like wages, pensions, and rental profits, which the allowance is applied against. It’s one reason ISAs stay useful even when other allowances are frozen.
Will my personal allowance rise next year?
Unlikely. The government has frozen the £12,570 allowance until April 2031, so it won’t rise with inflation in the meantime. As wages increase against a frozen threshold, more of your income becomes taxable each year. This effect is known as fiscal drag, and it quietly pulls more earners into higher tax bands over time.
What happens to my allowance if I have two jobs?
Your personal allowance is usually applied to your main job through one tax code, while the second job is often taxed with a code like BR that applies no allowance. If you earn under £12,570 across both, you may be overpaying and can ask HMRC to split the allowance between them. Checking both codes matters here.
Can I claim back overpaid tax from previous years?
Yes. If you’ve been on the wrong tax code or missed an allowance, you can usually claim back overpaid Income Tax for up to four tax years. Marriage allowance in particular can be backdated four years, potentially worth over £1,000 combined. HMRC will either refund you directly or adjust your future tax code to recover the amount.
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Does the personal allowance apply to self-employed income?
Yes. The £12,570 allowance applies to your self-employed profits just as it does to a salary. You pay Income Tax only on profits above the allowance, calculated through your Self Assessment return. If self-employment is your only income and profits stay under £12,570, you’ll owe no Income Tax, though National Insurance rules are separate.
How do I restore my allowance if I earn over £100,000?
Making a pension contribution or a Gift Aid donation reduces your adjusted net income, which is the figure the taper is based on. Bringing that figure back below £100,000 restores your full personal allowance. Because you’re also escaping the effective 60% rate in that band, the real value of the contribution is considerably higher than it first appears.
