The amount of income you can earn tax-free each year. For 2025/26, it's £12,570. It reduces by £1 for every £2 earned over £100,000.
How the Personal Allowance Affects Your Tax
The personal allowance is the amount you can earn each year before paying any income tax. For 2025/26, it is £12,570. This means the first £12,570 of your annual income is completely tax-free, saving you £2,514 in basic rate tax.
If you earn over £100,000, your personal allowance is reduced by £1 for every £2 of income above this threshold. By £125,140, your entire allowance has been removed, creating an effective 60% marginal tax rate in this band. This is known as the £100K tax trap.
You can also transfer £1,260 of your personal allowance to a spouse or civil partner through the marriage allowance, saving them up to £252 per year. This only works if the recipient is a basic rate taxpayer.
How Personal Allowance Works in Practice
The Personal Allowance is the amount of income you can earn tax-free each year. For 2025/26, it is £12,570. This allowance has been frozen since 2021 and is expected to remain at this level until at least 2028, a policy known as fiscal drag that effectively increases the tax burden as wages rise.
Practical Tips
Most employees receive their Personal Allowance automatically through their PAYE tax code (1257L). However, the allowance is reduced by £1 for every £2 earned above £100,000, disappearing entirely at £125,140. This creates an effective 60% marginal tax rate between £100,000 and £125,140. If you earn near this threshold, pension contributions can restore your allowance. See Personal Allowance taper.
Related Topics
The Marriage Allowance lets you transfer £1,260 of your Personal Allowance to a spouse or civil partner if one of you earns below £12,570 — saving up to £252/year. See Marriage Allowance calculator.
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