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Personal Tax Allowance 2025/26
- aafra9
- Jun 20
- 4 min read
UK Personal Tax Allowance Guide for 2025/26
As we move into the 2025/26 tax year, it’s important for individuals, business owners, and self-employed professionals to understand how the Personal Tax Allowance 2025/26 affects their income and tax liabilities. Whether you’re employed, a director of a limited company, or a sole trader, staying informed on these changes is essential for effective financial planning. In this article, we break down what Personal Allowance means, the rates for 2025/26, and how you can make the most of your tax-free income.
At PKPI Chartered Accountants, we guide professionals across the UK to optimise their income while remaining fully compliant with HMRC regulations.
What Is the Personal Allowance?
The Personal Allowance is the amount of income you can earn each year before you start paying income tax.
In the UK, everyone gets a standard tax-free allowance.
Once your income exceeds this amount, the rest is taxed based on the appropriate income tax bands (Basic, Higher, or Additional rate).
Personal Allowance for the 2025/26 Tax Year
As of the 2025/26 tax year (starting 6 April 2025), the Personal Allowance remains at £12,570, unchanged from previous years.
Band | Income Range | Tax Rate |
Personal Allowance | Up to £12,570 | 0% |
Basic Rate | £12,571 to £50,270 | 20% |
Higher Rate | £50,271 to £125,140 | 40% |
Additional Rate | Over £125,140 | 45% |
If you earn more than £100,000 a year, you’ll start to lose your tax-free Personal Allowance. For example, with every £2 you earn over £100,000, you lose £1 of your tax-free allowance.
By the time your income reaches £125,140, you won’t get any Personal Allowance, which means you’ll pay tax on all your income.
Has Anything Changed in 2025/26?
There were no big changes to personal tax allowance in the Spring Budget. It will stay the same until at least 2027/28, based on the current government plan.
This might sound like nothing is changing, but it actually means people could end up paying more tax over time. That’s because as your income goes up with inflation, the tax-free limit doesn’t go up too, so more of your money gets taxed. This is called “fiscal drag.”
At first, it might seem like nothing is changing — but in reality, many people may end up paying more tax over time. That’s because while incomes often rise with inflation, the tax-free Personal Allowance remains frozen, meaning a larger portion of your income becomes taxable. This quiet increase in your tax burden is known as “fiscal drag.”
To avoid paying more than you need to, explore smart tax-saving strategies with PKPI Chartered Accountants — your trusted partner in proactive tax planning.
Who Is Affected?
Employees and salaried professionals – Personal Allowance is applied via PAYE (Pay As You Earn).
Self-employed individuals – Applied when calculating income tax via Self Assessment.
Directors of limited companies – Personal Allowance applies before taxes on salary and dividends.
Pensioners – Personal Allowance is the same, though pension income is also taxable beyond the threshold.
Tax Planning Tips to Make the Most of Your Personal Allowance
1. Use Your Allowance Efficiently
Split income (if possible) between partners/spouses where one has unused allowance.
2. Contribute to Pensions
3. Claim Allowable Deductions
For self-employed individuals, deduct legitimate business expenses to lower your taxable income.
4. Use ISA (Individual Savings Accounts) Allowances
Earn tax-free interest or returns through Individual Savings Accounts (ISAs).
5. Protect Your Personal Allowance
If you’re earning close to £100,000, you can keep more of your tax-free Personal Allowance by making pension contributions or donating to charity through Gift Aid.
These strategies help reduce your taxable income, allowing you to retain your allowance and lower your overall tax bill.
At PKPI Chartered Accountants, we help high earners plan smartly and legally to maximise tax savings. Book a free consultation today to see how we can help you keep more of what you earn.
FAQs
1. Has Personal Allowance changed since last year?
A: No. Personal Allowance has been frozen at £12,570 since 2021/22 and will remain the same through the 2025/26 tax year. While it hasn’t decreased, the freeze can still result in higher taxes over time due to a phenomenon called fiscal drag — where rising incomes push more of your earnings into taxable brackets.
3. Will I pay more tax if my income goes up but the allowance stays the same?
A: Yes, potentially. If your income increases (due to inflation or a raise), but the personal allowance stays fixed, a larger portion of your income will fall into taxable brackets, which may lead to a higher tax bill, even if your spending power hasn’t truly increased.
4. Are there any ways to reduce how much tax I pay if the Personal Allowance is frozen?
A: Yes. You can reduce your taxable income by:
Contributing more to a pension
Making use of ISA allowances
Using Gift Aid for charitable donations
Splitting income with a spouse if eligible
Exploring salary vs dividend strategies if you’re a company director
PKPI Chartered Accountants can help you plan and apply these strategies effectively.
5. Who gets the full Personal Allowance in 2025/26?
A: Most people in the UK with an income below £100,000 are eligible for the full £12,570 Personal Allowance.
If your income is above £100,000, your allowance will be gradually reduced by £1 for every £2 of income over that limit. Once your income hits £125,140, you lose the allowance entirely and pay tax on all income.
The UK tax system can be complex, especially when dealing with multiple income streams, pensions, or business ownership. Keeping your tax liability low while remaining compliant requires smart planning.
At PKPI Chartered Accountants, we specialise in supporting professionals such as dentists, consultants, and business owners to maximise their income while legally minimising their tax liabilities.
📞 Speak to an expert today — call +44 2079 418160 for your free consultation
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