Every UK taxpayer gets a slice of tax-free income each year, but earn too much and HMRC quietly takes it away.
Earn a penny under £12,570 this tax year and you will pay no Income Tax at all. Earn a penny over £125,140 and you will pay tax on every pound you earn, because the Personal Allowance has been entirely withdrawn. That gap between £12,570 and £125,140 is one of the most consequential in the UK tax system, yet millions of people do not realise how it works, or whether they are getting the right amount in the first place.
The allowance sits at the bottom of the Income Tax bands, acting as a zero-rate band before the 20% basic rate kicks in. Think of it as the first £12,570 of your income being taxed at 0%. Everything above that threshold, up to £50,270, is taxed at 20%. Income between £50,270 and £125,140 is taxed at 40%. Above £125,140, you are in the 45% additional rate band and you have no Personal Allowance left.
For employees, the allowance is built into your tax code. The most common code, 1257L, which represents the standard £12,570 allowance, tells your employer how much to pay you before applying PAYE deductions. You do not need to claim it or fill in a form; it is baked into the payroll system.
For sole traders and the self-employed filing a Self Assessment return, the allowance is deducted from your total income when calculating your tax bill. If your profit is £20,000, only £7,430 of that is taxable at the basic rate.
This is the part of the Personal Allowance that catches high earners by surprise. Once your adjusted net income crosses £100,000, HMRC begins withdrawing the allowance at a rate of £1 for every £2 of income above that level. By the time you reach £125,140, the allowance is completely gone.
The consequence is a marginal tax rate of 60% on income between £100,000 and £125,140. You are paying 40% Income Tax on that income, plus you are losing allowance that would have sheltered other income from 40% tax, and the two effects stack.
| Income Measure | Amount |
|---|---|
| Total income | £110,000 |
| Excess above £100,000 | £10,000 |
| Allowance lost (÷2) | £5,000 |
| Remaining Personal Allowance | £7,570 |
| Taxable income | £102,430 |
Compared with someone earning exactly £100,000 who keeps the full £12,570 allowance, that additional £10,000 of income creates £6,000 of extra tax. That is a 60p tax bill on each additional pound, not 40p.
The practical fix many accountants recommend is making pension contributions or Gift Aid donations before the tax year ends. Both reduce your adjusted net income and can pull you back below £100,000, restoring some or all of the allowance.
Not everyone gets the standard £12,570. Several groups receive a different figure.
Blind Person's Allowance adds £3,070 to your Personal Allowance for 2025/26, bringing your total tax-free amount to £15,640 if you are registered blind or severely sight-impaired.
Marriage Allowance lets one partner transfer £1,260 of their unused Personal Allowance to the other, reducing the recipient's tax bill by up to £252 a year. It only applies where one partner earns below the Personal Allowance and the other is a basic-rate taxpayer.
Non-residents may not be entitled to the full Personal Allowance, depending on their country of residence and whether a double-taxation agreement applies.
High earners face the taper described above. If HMRC has been notified of income above £100,000 through a Self Assessment return, your tax code will already reflect a reduced allowance for the current year.
HMRC does not always get tax codes right first time. If you have started a second job, taken on freelance income, or had a change in circumstances, the code your employer is using might be too high or too low, meaning you are either underpaying or overpaying tax right now.
A code that is too low means money is being deducted from your pay that you are legally entitled to keep. A code that is too high means a tax bill is quietly accumulating, and HMRC will chase it via an adjustment or a Self Assessment return.
The quickest way to spot a problem is to check your tax code directly through your HMRC personal tax account. It takes a few minutes and can surface errors that have been quietly affecting your pay for months.
If you want to see exactly what a corrected allowance means for your monthly take-home, the TapTax salary tax calculator lets you model different income levels and allowance amounts side by side.
The Personal Allowance has been stuck at £12,570 since April 2021, and the government has confirmed it will stay there until at least April 2028. In a period of wage growth and inflation, a frozen allowance is a stealth tax rise.
Consider this: in April 2021 the average UK full-time salary was around £31,400. By 2024 it had risen to over £35,000. The allowance has not moved, which means more of each salary increase is being taxed at 20% rather than sheltered. The Office for Budget Responsibility estimated in 2024 that the freeze would drag an additional 3.2 million people into paying Income Tax by 2028 compared with a scenario in which the allowance had risen with inflation.
For sole traders, the effect is compounded. Rising costs mean higher turnover to maintain the same profit, but the tax-free slice of that profit has not grown with it.
The Personal Allowance freeze means that every pay rise you get between now and 2028 is taxed slightly harder than the last one, whether HMRC mentions it or not.
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