What’s my Personal Allowance? Understanding income tax (2026/27)

Personal Allowance is one of the simpler parts of the UK tax system — but it still trips up plenty of sole traders and directors. If this sounds like you, don’t worry!

This guide covers what your personal tax allowance is, how much you can earn tax–free in 2026/27, and how to plan around the freeze.

Key takeaways

• Your tax–free personal allowance for 2026/27 is £12,570 — unchanged since the 2021/2022 tax year
• You start paying income tax only on what you earn above the £12,570 threshold
• Earn over £100,000 and your allowance starts decreasing
• The UK government has frozen the allowance until at least 2030/31, so it’s worth planning ahead

Your UK Personal Allowance is the amount you can earn each tax year before paying any income tax. Think of it as the tax–free floor of your earnings. 

It applies to most income types, including salary, self–employed profits and rental income.

Dividend income is taxed separately, using its own rates and a smaller £500 allowance. Your Personal Allowance is used by salary and other non–dividend income first.

For sole traders and limited company directors, this figure shapes how much salary you draw, how you structure dividends, and how you budget for Self Assessment.

Tip: if you have a small amount of side income, you may not need to use your Personal Allowance for it at all. Alongside the Personal Allowance, HMRC gives everyone a £1,000 trading allowance and a separate £1,000 property allowance

The current personal tax allowance is £12,570. 

That means the first £12,570 you earn in the 2026/27 tax year (6 April 2026 to 5 April 2027) is completely free of income tax. 

Once you go over, income tax applies as follows across England, Wales, and Northern Ireland: 

• Basic rate (20%): £12,571–£50,270
• Higher rate (40%): £50,271–£125,140
• Additional rate (45%): above £125,140

Example: imagine you’re a sole trader with £30,000 in profit this year. You’d only pay tax on £17,430 of it (£30,000 minus your £12,570 allowance) — not the full amount.

Ready for a plot twist? It was exactly the same. 

In fact, the 2026/27 tax year marks the sixth consecutive year the allowance has remained at this level. The UK government has confirmed it won’t rise again until at least 2030/31.

This freeze creates a phenomenon known as fiscal drag. Because the threshold isn’t rising alongside business profits or inflation, more of your earnings fall into taxable territory each year. 

Example: let’s say you’re a sole trader and your profit rose from £32,000 in 2025/26 to £35,000 in 2026/27 — a £3,000 increase. However, because your allowance stayed frozen at £12,570, your tax bill increased from £3,886 to £4,486, meaning that extra £3,000 was taxed at the full 20%. 

Same story again: £12,570.

Example: imagine you’re a company director and your salary increased from £24,000 in 2024/25 to £26,500 in 2025/26 — a £2,500 pay rise. Because the tax–free allowance didn’t grow with your pay, the full £2,500 was taxed at the 20% basic rate — adding £500 straight to your tax bill. 

This is not a huge amount in isolation, but it adds up year after year. It’s definitely worth factoring in when deciding how to split income between salary and dividends as your profits grow. 

If your income passes £100,000, your Personal Allowance decreases by £1 for every £2 earned above the threshold, reaching zero at £125,140. 

For example: if you’re a company director drawing £110,000 in taxable income, you’re £10,000 over the threshold, so you lose £5,000 of your allowance, leaving you with £7,570 tax–free income instead of £12,570. 

This creates what’s often called an effective 60% tax rate: you’re taxed at 40% in the £100,000–£125,140 band, while losing tax–free income at the same time. 

Your Personal Allowance isn’t always fixed at £12,570. It can adjust based on your personal circumstances. 

Marriage Allowance: 

• This lets you transfer some of your unused Personal Allowance to your husband, wife, or civil partner as long as you earn below £12,570, and they’re a basic–rate taxpayer (so their income sits between £12,571 and £50,270) 
• For 2026/27, you can transfer £1,260, which reduces your partner’s tax bill by up to £252 for the year

It only takes a few minutes to apply online through GOV.UK.

Blind Person’s Allowance: 

If you’re registered blind or severely sight–impaired, you get an additional £3,250 on top of your standard Personal Allowance for 2026/27. This is regardless of how much you earn.

• That takes your total tax–free income to £15,820 rather than £12,570
• At the basic rate, that’s a saving of £650 compared to someone without the allowance
• If you don’t earn enough to use it all yourself, you can transfer the unused portion to your spouse or civil partner, too

Based on everything we know so far, no, not any time soon. Current legislation confirms the freeze will remain in place until at least 2030/31. 

It’s not something to worry about too much, but it’s worth factoring this into your longer–term financial planning, especially if you’re expecting your income to grow over the next few years.

Whether you are deciding on a director’s salary, timing dividends, or prepping for Self Assessment, understanding your UK personal allowance can help to simplify your financial planning. 

In the meantime, if you’re thinking about making your business official, our company registration can get you set up within 24 hours. Paired with a business bank account, you keep track of your income and tax estimates from the start. 

For more tips and guides, head over to our resource hub. From finding out the best way to pay yourself from a ltd company to making tax time as stress–free as possible, we’re with you every step of the way. 

You start losing your Personal Allowance once your income passes £100,000, and it disappears once you start earning £125,140.

You don’t need to claim Personal Allowance as it’s applied automatically through your tax code (usually the 1257L tax code) if you’re employed, or built into your calculations automatically if you file a Self Assessment return.

Most income counts towards it, including salary, self-employed profits and rental income. However, it doesn’t apply to income already protected from tax, like earnings inside an ISA.

UK citizens living abroad are often still entitled to the Personal Allowance, but it can depend on your residency status and any tax treaties in place. If you’re weighing up how to draw income as a director from outside the UK, it’s worth reading up on the most tax–efficient way to pay yourself.