Personal Tax Allowance 2025/26 | Key Information for UK Taxpayers

The personal tax allowance plays a crucial role in the UK tax system, offering a threshold below which no Income Tax is due. For the 2025/26 tax year, understanding this allowance and how it applies to your circumstances can help you better manage your finances and plan for the future.

In this blog, I’ll cover everything you need to know about the personal tax allowance, tax bands, and what changes, if any, are expected for the upcoming tax year.

What Is the Personal Tax Allowance?

The personal tax allowance is the amount of income you can earn each tax year without having to pay Income Tax. It is a cornerstone of the UK tax system, designed to ensure that every taxpayer receives a minimum amount of income tax-free.

For the 2025/26 tax year, the standard personal tax allowance is set at £12,570, meaning that any earnings below this amount are exempt from Income Tax.

This allowance is automatically applied to most taxpayers and is vital for supporting low- and middle-income earners, as it provides significant financial relief by reducing their overall tax burden.

Here’s how it works:

• If you earn £12,570 or less, you won’t pay any Income Tax.
• If you earn more than £12,570, only the portion of your income above this threshold will be taxed at the relevant rate.

For example:

• A person earning £20,000 will have the first £12,570 tax-free, with the remaining £7,430 taxed at 20% (basic rate), resulting in a tax bill of £1,486.

However, the personal tax allowance isn’t fixed for everyone. It can vary based on specific circumstances:

• High Earners: If your annual income exceeds £100,000, your personal allowance reduces by £1 for every £2 earned over this limit. By the time your income reaches £125,140, your personal allowance is entirely eliminated.
• Non-Residents: If you live outside the UK but have taxable UK income, you might not qualify for the personal allowance unless certain conditions apply.

Why Does the Personal Tax Allowance Matter?

Understanding and utilising your personal tax allowance is critical for several reasons:

• Reduces Tax Liability: The allowance helps lower your taxable income, allowing you to keep more of your earnings.
• Supports Financial Planning: Knowing how much of your income is tax-free allows you to budget effectively.
• Protects Low Earners: For individuals with modest earnings, the personal allowance ensures they aren’t taxed unnecessarily.
• Impacts High Earners: For those earning over £100,000, it’s crucial to consider how the tapering of the allowance affects their overall tax bill.

In summary, the personal tax allowance is a key benefit of the UK tax system, helping taxpayers across all income levels manage their finances and reduce their tax burden.

For high earners and those with changing circumstances, understanding how it’s calculated and applied can make a significant difference in optimising their tax position.

What Are the Personal Tax Allowance Rates for 2025/26?

For the 2025/26 tax year, the personal allowance remains the same as the previous year at £12,570.

This is part of the UK government’s decision to freeze tax thresholds until April 2028. While this freeze might sound like a static change, it has important implications due to inflation and wage growth.

As wages rise over time, more people may find themselves pushed into higher tax brackets, even if the tax thresholds themselves haven’t changed. This phenomenon, known as “fiscal drag”, means that taxpayers may owe more tax despite earning only slightly more.

Here’s a breakdown of the current tax bands for England, Wales, and Northern Ireland for the 2025/26 tax year:

For taxpayers in Scotland, different rates and thresholds apply due to devolved tax powers:

How Does the Personal Tax Allowance Affect Different Taxpayers?

The personal tax allowance applies differently depending on your income level. Let’s take a closer look at how it impacts various taxpayers:

1. Basic-Rate Taxpayers: If your earnings fall between £12,571 and £50,270, you’ll pay 20% tax on the portion of your income above the personal allowance. For example:

• If you earn £30,000, the first £12,570 is tax-free, and the remaining £17,430 is taxed at 20%, resulting in a tax bill of £3,486.

2. Higher-Rate Taxpayers: For those earning between £50,271 and £125,140, the tax rate increases to 40% on income above £50,270. For instance:

• If you earn £80,000, you’ll pay 20% on the portion between £12,571 and £50,270 (£37,699) and 40% on the remaining £29,730.

3. Additional-Rate Taxpayers: High earners with income over £125,140 pay 45% tax on any earnings above this threshold, with no personal allowance.

What Other Allowances and Tax Reliefs Are Available?

The personal allowance isn’t the only form of tax relief available to UK taxpayers. Here are some additional allowances and tax reliefs you might be eligible for:

• Marriage Allowance: If you’re married or in a civil partnership and one partner earns below the personal allowance, they can transfer up to £1,260 of unused allowance to the other partner. This can reduce the higher earner’s tax bill by up to £252.
• Personal Savings Allowance: Basic-rate taxpayers can earn up to £1,000 in savings interest tax-free, while higher-rate taxpayers can earn up to £500.
• Capital Gains Tax Allowance: If you sell an asset, such as property or shares, you may be entitled to a tax-free capital gains allowance.
• Pension Contributions: Contributions to a pension scheme are eligible for tax relief, which can reduce your taxable income significantly.

How Does the Personal Allowance Apply in Common Taxpayer Scenarios?

Scenario 1: Earning Below the Threshold

If your income is £10,000, you don’t owe any Income Tax because it’s below the personal allowance. This is common among part-time workers, students, or retirees with modest pensions.

Scenario 2: Earning Above the Threshold

For someone earning £40,000, the first £12,570 is tax-free, the next £27,430 is taxed at 20%, resulting in a tax bill of £5,486.

Scenario 3: High Earners

If your income is £150,000, your personal allowance is completely removed due to tapering, and your tax bill is calculated based on higher and additional rates.

How Can You Prepare for Tax Changes in 2025/26?

Even though the personal allowance remains frozen, you can take steps to manage your tax liability effectively:

• Check Your Tax Code: Ensure your employer is using the correct tax code to avoid overpaying or underpaying taxes.
• Plan for Salary Adjustments: If your income increases, be mindful of potential changes to your tax bracket.
• Use Allowances and Reliefs: Take advantage of reliefs like the marriage allowance or pension contributions to reduce your taxable income.
• Seek Advice: Consult a tax advisor for complex situations or if you suspect you’re owed a refund.

How Can You Optimise Your Personal Tax Allowance in 2025/26?

Maximising the benefits of your personal tax allowance and other tax reliefs can help you minimise the amount of Income Tax you pay. Here are some practical ways to optimise your tax position:

1. Maximise Pension Contributions

Contributing to your pension is one of the most effective ways to reduce your taxable income. Pension contributions receive tax relief at your highest marginal rate, which means:

• Basic-rate taxpayers get 20% tax relief on contributions.
• Higher-rate taxpayers can claim 40%.
• Additional-rate taxpayers can claim 45%.

For example, if you’re a higher-rate taxpayer earning £70,000 and you contribute £10,000 to your pension, your taxable income drops to £60,000, meaning you pay less tax.

2. Take Advantage of the Marriage Allowance

If you’re married or in a civil partnership and one partner earns less than £12,570, the Marriage Allowance allows the lower earner to transfer up to £1,260 of their unused personal allowance to the higher earner. This could reduce your overall tax bill by up to £252 annually.

3. Consider Salary Sacrifice Arrangements

Salary sacrifice schemes allow you to reduce your taxable income by exchanging part of your salary for non-cash benefits, such as additional pension contributions, childcare vouchers, or cycle-to-work schemes. These arrangements lower the amount of income subject to tax and National Insurance.

4. Use the Personal Savings Allowance

If you earn interest from savings, make sure to take full advantage of the Personal Savings Allowance:

• Basic-rate taxpayers can earn up to £1,000 in interest tax-free.
• Higher-rate taxpayers can earn up to £500.

If your interest exceeds these limits, consider moving your savings into Individual Savings Accounts (ISAs), where interest is completely tax-free.

5. Claim Work-Related Tax Relief

If you incur expenses while working, such as travel costs, uniforms, or equipment, you may be able to claim tax relief on these expenses.

For example, teachers can claim for teaching materials, and remote workers can claim relief on costs like broadband or electricity if they work from home.

Optimising your personal allowance requires planning and a good understanding of your financial situation. Don’t hesitate to consult with a tax advisor if your circumstances are complex or if you’re unsure about the reliefs you’re entitled to.

What Should You Do If You Overpay or Underpay Tax?

Tax errors can occur for a variety of reasons, such as changes in income, incorrect tax codes, or mistakes made by employers. Here’s what you need to know about addressing overpayments or underpayments of tax:

1. How to Identify an Overpayment?

You might have paid too much tax if:

• You stopped working part-way through the tax year.
• Your income dropped significantly during the year, but your tax code didn’t reflect this change.
• You had multiple jobs, and your tax-free personal allowance wasn’t allocated correctly.

If you think you’ve overpaid, HMRC will often identify this automatically and issue a P800 tax calculation at the end of the tax year. If they don’t, you can contact HMRC to request a refund.

2. How to Handle Underpayments?

If you underpay tax, HMRC will notify you via a P800 or Simple Assessment letter. This could happen if:

• You were given too much tax-free allowance (e.g., through multiple jobs).
• You received untaxed income, such as rental earnings or dividends.
• Your employer used the wrong tax code.

Underpayments are typically recovered through adjustments to your tax code in the following year, meaning you’ll pay a bit more tax each month until the debt is cleared. Alternatively, you can pay the owed amount as a lump sum.

3. Correcting Your Tax Code

Your tax code determines how much tax is deducted from your income. A common tax code for 2025/26 is 1257L, which reflects the standard personal allowance of £12,570. If your tax code is incorrect, you may overpay or underpay tax.

To check your tax code:

• Look at your payslip or your Personal Tax Account online.
• Contact HMRC if you think your tax code is wrong.

4. Keep Records of Income and Expenses

Maintaining accurate records of your earnings, expenses, and tax payments is crucial for avoiding errors and resolving disputes with HMRC. Keep track of:

• Payslips.
• P60s and P45s.
• Receipts for work-related expenses.

By staying organised and proactive, you can ensure that you only pay what you owe and recover any overpaid tax efficiently.

Conclusion

The personal tax allowance for 2025/26 is a critical component of the UK tax system, allowing most taxpayers to earn up to £12,570 without paying Income Tax.

While the allowance remains frozen, understanding its implications can help you manage your tax liability and maximise your financial position.

Stay informed about changes to tax bands and rates, and always seek professional advice when dealing with complex tax issues.

Frequently Asked Questions

Has the personal allowance for 2025/26 changed?

No, the personal allowance remains the same as in 2024/25, frozen at £12,570.

What happens if I earn less than the personal allowance?

If your income is below £12,570, you won’t owe any Income Tax for the 2025/26 tax year.

How is the personal allowance reduced for high earners?

The allowance tapers by £1 for every £2 earned above £100,000 and is completely removed once income exceeds £125,140.

Are Scottish tax rates different?

Yes, Scotland has its own tax bands and rates, with differences at the basic, intermediate, and higher levels.

Can I claim tax relief on savings or pensions?

Yes, the personal savings allowance and pension contributions allow for tax relief, reducing your taxable income.

What should I do if my tax code is wrong?

Contact HMRC or your employer to correct your tax code as soon as possible.

When will changes to tax bands be announced?

Any updates to tax bands or rates for 2025/26 will be announced in the Spring Budget on 6th March.