Personal Allowance

The Personal Allowance is the amount of income you can earn each tax year before paying any income tax. It's £12,570 — frozen until April 2031 (the Autumn Budget 2025 extended the freeze from 2027-28).

It applies to almost all UK taxpayers automatically. It covers most forms of income: employment, self-employment, rental, pension, and most savings interest (which has its own allowances on top).

The allowance is tapered away for higher earners. For every £2 of income above £100,000, £1 of Personal Allowance is lost. By £125,140, the allowance is gone entirely — creating a 60% effective marginal rate between those thresholds.

Scotland uses the same Personal Allowance but has different income tax bands above it. For Ltd directors taking a small salary, setting the salary at the Personal Allowance is the standard tax-efficient starting point.

Related terms

• Dividend allowance — A tax-free portion of dividend income — £500 for 2026-27 (down from £2,000 in 2022-23).
• Tax code — The code HMRC gives your employer so they know how much of your pay is tax-free under PAYE.
• Corporation Tax — Tax on company profits — 19% small profits rate up to £50k, 25% main rate above £250k, with marginal relief between.
• Self Assessment — HMRC's system for declaring income not taxed at source — filed annually by the self-employed, landlords, and many directors.
• Higher-rate threshold — The point where income tax jumps from 20% to 40% — £50,270, frozen until April 2031.
• Additional rate — The top income tax band — 45% on income above £125,140 (lowered from £150,000 in April 2023).