How the Personal Allowance Works (And When You Lose It)
The Personal Allowance is the amount of income you can earn each year without paying any income tax. In 2025/26, it is set at £12,570. It sounds straightforward — but there are important exceptions, especially for higher earners, that can significantly affect your tax bill.
What Is the Personal Allowance?
Every UK taxpayer gets a Personal Allowance — a tax-free slice of income at the bottom of the tax bands. In 2025/26 this is £12,570. You only start paying income tax on earnings above this threshold. It applies to most types of income: employment, self-employment, pension income and some rental income.
2025/26 Personal Allowance: £12,570. This threshold has been frozen since 2021 and is set to remain frozen until April 2028 — a policy known as "fiscal drag" that gradually increases the number of people paying tax as wages rise.
How Is the Personal Allowance Applied?
For employees, the Personal Allowance is built into your tax code. The standard code is 1257L — the "1257" represents £12,570 divided by 10. Your employer uses this to calculate how much tax-free pay you receive in each pay period before deducting income tax.
When Does the Personal Allowance Start to Reduce?
If your adjusted net income exceeds £100,000, HMRC tapers away your Personal Allowance at a rate of £1 for every £2 you earn above the threshold. By the time your income reaches £125,140, the allowance has been entirely removed.
| Income | Personal Allowance remaining |
|---|---|
| £100,000 or below | £12,570 (full) |
| £110,000 | £7,570 |
| £120,000 | £2,570 |
| £125,140 or above | £0 |
The £100,000–£125,140 trap: because you lose £1 of allowance for every £2 earned, you effectively pay a 60% marginal tax rate on income in this range (40% higher rate + 20% from the lost allowance). This is higher than the additional rate above £125,140.
How to Protect Your Personal Allowance
The taper is based on your adjusted net income, not your gross salary. Certain deductions reduce this figure and can restore your allowance:
- Pension contributions: gross contributions reduce your adjusted net income pound for pound
- Gift Aid donations: the grossed-up value of Gift Aid donations is deducted
- Salary sacrifice: pre-tax benefits lower the gross pay HMRC sees
- Trading losses: if you are self-employed, losses can offset other income
Example: If you earn £110,000 and make a £10,000 pension contribution, your adjusted net income drops to £100,000 — restoring the full £12,570 Personal Allowance and saving you around £5,000 in additional tax.
The Marriage Allowance
If you earn less than £12,570, you can transfer up to £1,260 of unused Personal Allowance to a spouse or civil partner who is a basic rate taxpayer. This reduces their tax bill by up to £252 per year. You can backdate a claim up to four tax years.
Blind Person's Allowance
If you are registered blind or severely sight-impaired, you can claim the Blind Person's Allowance of £3,070 on top of the standard Personal Allowance — giving you a total of £15,640 tax-free in 2025/26. Any unused amount can be transferred to a spouse or civil partner.
Frequently Asked Questions
Frequently Asked Questions
Marcel Tonet
AAT Qualified · CeMAP Qualified · Tech & Financial Services
Marcel is an AAT-qualified accounting technician and CeMAP-qualified mortgage adviser with a career spanning technology and the UK financial services industry. He built and maintains Salary Take Home UK, updating all tax rates and thresholds each April for the new tax year.
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