Tax-Free Personal Allowance 2026/27: How It Works

The Personal Allowance is the amount of income most people can receive before paying Income Tax. For the 2026/27 tax year, the standard allowance is £12,570.

The allowance can apply across employment income, pension income, self-employment profits and other taxable income. It is not a separate allowance for each income source.

Income Tax Bands for England, Wales and Northern Ireland

After the Personal Allowance, the main 2026/27 rates are:

• Basic rate: 20% on income from £12,571 to £50,270
• Higher rate: 40% on income from £50,271 to £125,140
• Additional rate: 45% on income above £125,140

Different Income Tax bands apply to Scottish taxpayers. Separate rates also apply to dividends.

What Happens When Income Exceeds £100,000?

The Personal Allowance reduces by £1 for every £2 that adjusted net income exceeds £100,000. It is completely removed when adjusted net income reaches £125,140.

This creates an effective 60% Income Tax rate on affected non-dividend income within this range in England, Wales and Northern Ireland. Pension contributions or Gift Aid donations may reduce adjusted net income and restore some Personal Allowance, depending on the circumstances.

Other Tax-Free Allowances

Some taxpayers may also qualify for:

• Marriage Allowance: an eligible lower-earning spouse or civil partner can transfer £1,260 of their Personal Allowance, reducing their partner’s tax by up to £252
• Blind Person’s Allowance: an additional £3,250 for eligible people
• Personal Savings Allowance: £1,000 for basic-rate taxpayers, £500 for higher-rate taxpayers and nil for additional-rate taxpayers
• Dividend Allowance: the first £500 of dividend income is taxed at 0%
• Trading and property allowances: up to £1,000 each for qualifying gross income

These allowances have separate conditions. For example, using the £1,000 trading allowance may not be beneficial where allowable business expenses exceed that amount.

Personal Allowance and National Insurance

The Personal Allowance only relates to Income Tax. National Insurance uses different thresholds, so someone may have National Insurance to pay even where no Income Tax is due.

Directors should also remember that the allowance applies to their personal income, not their company’s profits. Salary and dividend planning should consider Income Tax, National Insurance, Corporation Tax and available company profits together.

Personal Tax Advice in Cambridge and Nottingham

GMS Accountants helps individuals, sole traders and company directors in Cambridge and Nottingham understand their allowances, prepare Self Assessment returns and plan tax efficiently throughout the year.