What is the Personal Allowance? [2026/27 UK Tax Thresholds]

What is the Personal Allowance threshold for the 2026/27 tax year?

The standard Personal Allowance for the 2026/27 UK tax year is £12,570. It is the amount of income most individuals can receive before they start paying Income Tax. The UK tax year runs from 6 April 2026 to 5 April 2027.

The allowance begins to reduce where adjusted net income exceeds £100,000. It falls by £1 for every £2 above this threshold and is normally fully withdrawn once adjusted net income reaches £125,140. The standard allowance applies across the UK, although Scottish Income Tax rates and bands differ for certain types of income.

How do the tax-free allowance and national insurance contribution thresholds impact my earnings?

For 2026/27, the main Income Tax and employee National Insurance thresholds are:

• Personal Allowance for Income Tax: £12,570
• Employee National Insurance Primary Threshold: £12,570 a year
• Employee Upper Earnings Limit: £50,270 a year

For a standard category A employee, employee Class 1 National Insurance is charged at 8% on earnings above the Primary Threshold and up to the Upper Earnings Limit, followed by 2% on earnings above that limit.

Although the annual Personal Allowance and National Insurance Primary Threshold are aligned, Income Tax and National Insurance are not always triggered or calculated in exactly the same way. Income Tax depends on taxable income and the employee’s tax code, while employee National Insurance is normally calculated for each pay period.

Company directors generally pay National Insurance using an annual earnings period rather than an ordinary weekly or monthly earnings period.

As a company director, is there a way to adjust income above the £100,000 threshold to retain the Personal Allowance?

Yes. Legitimate tax-planning methods, such as qualifying pension contributions, salary sacrifice and certain trading loss-relief claims, can reduce adjusted net income and help preserve some or all of the Personal Allowance.

Increased Pension Contributions

The standard pension Annual Allowance for 2026/27 is £60,000 and covers total pension input, including personal and employer contributions. It may be lower for high earners or people who have flexibly accessed a pension, while unused allowance from the previous three tax years may be available through carry-forward rules.

Tax relief on personal contributions is normally limited to 100% of relevant UK earnings, or £3,600 gross where the relevant conditions are met.

For example, if an individual’s adjusted net income would otherwise be £110,000, a qualifying £10,000 gross pension contribution could reduce it to £100,000. Where the pension uses relief at source, the individual would normally pay £8,000, and the pension provider would add £2,000 in basic-rate tax relief.

Salary or Bonus Sacrifice

A salary sacrifice arrangement allows an employee to give up future salary or a bonus in exchange for an employer pension contribution. The employer and employee must agree to the arrangement and amend the employment terms before the employee becomes entitled to the payment. It must also not reduce cash earnings below the applicable National Minimum Wage.

For example, if a future bonus would take an employee above £100,000, they may agree in advance to sacrifice part of it into their pension. Where the arrangement is effective, this reduces taxable employment income and adjusted net income.

Qualifying Trading Losses

Certain qualifying trading losses can reduce adjusted net income where valid relief is claimed against general income.

The treatment depends on how the loss arose, whether the trade was conducted commercially, the tax year involved and which statutory loss-relief claim is made. A trading loss does not automatically reduce employment income.

Professional tax advice should be obtained before relying on a side-business loss to preserve the Personal Allowance.

How do the dividend allowance and Personal Allowance apply to directors’ and shareholders’ income?

The Personal Allowance and Dividend Allowance apply differently.

The standard £12,570 Personal Allowance can cover taxable income from sources including salary, self-employment profits, property income, savings interest and dividends. The £500 Dividend Allowance applies only to dividend income.

For 2026/27, dividend income above the available Personal Allowance and £500 Dividend Allowance is taxed at:

• 10.75% within the Basic Rate band
• 35.75% within the Higher Rate band
• 39.35% within the Additional Rate band

Dividend income is added to other taxable income when determining which tax band applies. The dividend rates apply throughout the UK, including Scotland. Dividends are not treated as relevant UK earnings for personal pension tax-relief purposes. A director’s tax-relievable personal contributions are normally limited by relevant UK earnings, such as salary, bonuses and qualifying self-employment profits.

Employer pension contributions follow different rules but still count towards the pension Annual Allowance.

What do I need to understand about Capital Gains Tax and the personal tax allowance when selling or disposing of assets?

The CGT allowance is separate from the Personal Allowance. For 2026/27, individuals generally have a £3,000 Annual Exempt Amount for taxable capital gains.

Capital Gains Tax may apply when an individual disposes of assets such as shares, cryptocurrency, personal possessions and property that Private Residence Relief does not fully cover.

Ordinary chargeable capital gains do not form part of adjusted net income and therefore do not directly cause the Personal Allowance to taper. However, taxable income can affect the rate of Capital Gains Tax charged on a gain.

The availability of reliefs and exemptions depends on the type of asset and the circumstances of the disposal.

How is the Personal Allowance treated differently across the UK, and how do income tax rates and bands in England, NI, and Wales compare with Scotland’s system?

The standard £12,570 Personal Allowance applies across England, Wales, Northern Ireland and Scotland. However, Scotland uses different rates and bands for non-savings, non-dividend income, while England, Wales and Northern Ireland use the bands shown below.

These ranges assume that the individual receives the full standard Personal Allowance.

Scottish rates apply to non-savings, non-dividend income such as salary, most pension income, property income and self-employment profits. Savings interest and dividends are taxed using UK-wide rates.

The uniform £12,570 Personal Allowance, combined with differing tax structures, creates specific outcomes for Scottish taxpayers:

• Higher-Rate threshold: Scottish taxpayers begin paying the 42% Higher Rate on non-savings, non-dividend income at £43,663. The 40% Higher Rate begins at £50,271 in England, Wales and Northern Ireland.
• Top tax rate: Scottish taxpayers pay the 48% Top Rate on applicable income above £125,140. The corresponding Additional Rate in England, Wales and Northern Ireland is 45%.

How long is the Personal Allowance frozen for, following the 2025 Budget?

At the Autumn Budget on 26 November 2025, the government extended the freeze by three further years. The £12,570 Personal Allowance, the £50,270 higher-rate threshold and the main National Insurance thresholds now stay fixed until April 2031, rather than ending in 2027/28. With wages rising against static thresholds, more income is brought into the tax system or higher tax bands through fiscal drag. This makes it increasingly important for individuals approaching the £100,000 taper threshold to monitor their adjusted net income.

How does HMRC use your tax code to adjust your Personal Allowance?

HMRC uses tax codes to tell employers and pension providers how much tax-free income to apply through PAYE.

For 2026/27, 1257L remains the tax code used for many people who have one job or pension and receive the standard £12,570 Personal Allowance.

An S prefix indicates that Scottish Income Tax rates apply, while a C prefix indicates that Welsh Income Tax rates apply. An M code normally means that the taxpayer has received a transfer of Personal Allowance from a spouse or civil partner, while an N code normally means that the taxpayer has transferred part of their allowance to their partner.

Tax codes can also change because of taxable employment benefits, untaxed income, underpaid tax, additional allowances or other adjustments made by HMRC.

Can I claim the marriage allowance and the Personal Allowance, and how do they interact?

Marriage Allowance allows an eligible person to transfer £1,260 of their Personal Allowance to their husband, wife or civil partner. This can reduce the recipient’s Income Tax by up to £252 for 2026/27.

The person transferring the allowance must normally have income below the standard £12,570 Personal Allowance. Their Personal Allowance is reduced to £11,310 after the transfer.

The recipient must normally pay Income Tax at the Basic Rate. In Scotland, the recipient can normally be a Starter, Basic or Intermediate Rate taxpayer, with income generally no higher than £43,662 before receiving Marriage Allowance.

Transferring the allowance may cause the lower-earning partner to pay some tax if their income is above £11,310. The couple should consider the combined tax position rather than assuming that every eligible claim will produce the full £252 saving.