The Personal Allowance is one of the simplest parts of UK tax. The first £12,570 of your income each year is tax-free, and for most people that’s where the story ends.
The complications start when your income goes above £100,000, when you’re married or in a civil partnership, or when you’re juggling income from a few different sources. Get the detail right and you can save several thousand pounds a year. Get it wrong and you can lose the whole allowance without realising what’s happened.
For 2026/27 the allowance is still £12,570, where it’s been since April 2021. The government has confirmed it will stay there until 5 April 2031 under current legislation.
This guide covers how the allowance works, the £100,000 taper that catches a lot of people out, the other allowances worth claiming, and the practical ways to keep more of your income tax-free.
How the Personal Allowance Works
The standard Personal Allowance for 2026/27 is £12,570. If your total taxable income from all sources sits below that, you don’t owe any income tax. Income that counts towards the allowance includes:
- Earnings: Salary, bonuses, taxable benefits in kind, and self-employment profits.
- Pension income: State Pension, workplace pensions, and personal pensions in payment.
- Property and investment income: Rental profits, dividends and savings interest – noting that the Personal Savings Allowance is a 0% tax band, not a deduction from income.
Above the allowance, the income tax bands for England, Wales and Northern Ireland are 20% on the next £37,700, 40% from £50,271 to £125,140, and 45% above £125,140. Different rates apply to dividends and savings.
Two things affect whether you keep the full £12,570:
- Your income level: Earnings over £100,000 trigger the taper covered below.
- Where you live: Scottish taxpayers have different income tax bands and rates, although the £12,570 Personal Allowance itself is the same UK-wide.
For most people the allowance is applied automatically through PAYE or Self Assessment, so there’s nothing to claim. It’s still worth checking your tax code each year. A wrong code is one of the most common reasons people overpay tax.
The £100,000 Taper
This is where the allowance becomes interesting for higher earners. Once your income passes £100,000, the Personal Allowance reduces by £1 for every £2 of additional income, until it disappears entirely at £125,140.
The technical detail matters here. The taper isn’t triggered by your gross income but by your adjusted net income – broadly, total taxable income before Personal Allowance, less certain reliefs such as grossed-up Gift Aid donations and grossed-up relief-at-source pension contributions.
That distinction matters because the right planning can pull your ANI down and restore some or all of the allowance.
Here’s how the taper bites at different income levels:
| Adjusted net income | Reduction in allowance | Remaining Personal Allowance |
|---|---|---|
| £105,000 | £2,500 | £10,070 |
| £110,000 | £5,000 | £7,570 |
| £115,000 | £7,500 | £5,070 |
| £125,140 | £12,570 | £0 |
The hidden problem is what’s happening to each pound between £100,000 and £125,140. On every £1 of income in that band, you’re paying:
- 40% income tax on the £1 itself
- Plus 20p of extra tax because you’ve lost 50p of Personal Allowance, and that 50p is now taxed at 40% rather than 0%
The combined effect is an effective 60% marginal rate. For employment income above the National Insurance upper earnings limit, the 2% employee NI takes it to 62%. The figure differs again for dividends, savings and rental income, and Scottish taxpayers face their own bands.
This is why a £10,000 bonus that takes someone from £100,000 to £110,000 often leaves only £3,800 in their bank account. It’s also why anyone hovering near the threshold should be paying serious attention to it – the planning options below can claw back most or all of the allowance.
Other Allowances Worth Knowing
A few other allowances sit alongside the standard Personal Allowance and are worth claiming if you qualify.
Marriage Allowance
If you’re married or in a civil partnership and one of you earns below £12,570, the lower earner can transfer £1,260 of their unused allowance to the higher earner. The result is a tax saving of up to £252 a year.
Two conditions matter:
- The recipient’s tax band: The higher earner must be a basic rate taxpayer, with income between £12,571 and £50,270 (or up to £43,662 in Scotland).
- Who claims: The lower-earning partner makes the claim. It can be backdated up to four tax years.
Backdating is where this gets interesting. If you’ve been eligible since 2022/23 without realising, claiming now could be worth roughly £1,000 in tax savings between the back-claim and the current year.
Once applied, Marriage Allowance carries forward automatically each year unless circumstances change. Older couples where one partner was born before 6 April 1935 may instead qualify for Married Couple’s Allowance, which is a separate relief with different rules.
Blind Person’s Allowance
For 2026/27, Blind Person’s Allowance is £3,250. It sits on top of the standard Personal Allowance, so a registered blind person can earn up to £15,820 tax-free.
You’re eligible if:
- In England or Wales: You’re registered as severely sight impaired with your local council.
- In Scotland or Northern Ireland: You have a medical certificate confirming severe sight impairment.
Unused allowance can be transferred to a spouse or civil partner whether they’re also blind or not. You have to claim it – it isn’t given automatically.
How to Protect the Allowance Near the Taper
If your income sits around or above £100,000, three legitimate routes can reduce your adjusted net income and pull you back below the threshold.
Pension Contributions
Personal pension contributions reduce adjusted net income at their grossed-up value. The example below shows how powerful this is at the £100,000 threshold.
Imagine you’re earning £108,000 and want to avoid the taper. A gross pension contribution of £8,000 brings your ANI back to £100,000 and restores the full Personal Allowance. In a relief-at-source personal pension, that means:
- You pay £6,400 from your bank account
- Your pension provider claims £1,600 of basic-rate tax relief on your behalf
- The contribution credited to your pension is £8,000
- You restore £8,000 of Personal Allowance, saving £3,200 of higher-rate tax that would otherwise apply
- You claim a further £1,600 of higher-rate relief through Self Assessment
The total income tax benefit comes to roughly £4,800 – on top of the £8,000 sitting in your pension. That’s before any National Insurance saving from a salary sacrifice arrangement, which can add a further £160 for an employee.
The annual pension allowance is £60,000, with up to three years of carry-forward where past allowances are unused. The trade-off is liquidity: pension money is locked away until age 57 from April 2028.
Gift Aid Donations
Gift Aid works on the same grossing-up principle. For every £1 donated, you deduct £1.25 from net income for ANI purposes.
Two examples:
- A £6,400 cash donation is treated as £8,000 gross, reducing ANI from £108,000 to £100,000.
- An £8,000 cash donation is treated as £10,000 gross, reducing ANI from £108,000 to £98,000.
Gift Aid only works if you’re a UK taxpayer who has paid at least as much income tax or capital gains tax as the charity reclaims. The charity needs a valid Gift Aid declaration on file, and higher-rate or additional-rate taxpayers reclaim the difference between their rate and basic rate through Self Assessment.
Salary Sacrifice
Salary sacrifice reduces contractual salary before income tax and National Insurance are calculated. The cleanest version is sacrificing into pension contributions – which both reduces ANI and saves the employee 8% in NI on the sacrificed amount, plus 15% for the employer.
Other salary sacrifice arrangements – electric car schemes, extra holiday, cycle-to-work – may also reduce cash salary, but some create taxable benefits in kind. The net effect on adjusted net income depends on the specific scheme, so it’s worth running the numbers before committing.
From April 2029, only the first £2,000 of employee pension contributions made through salary sacrifice each year will be exempt from National Insurance contributions. For employees making large sacrifices into a pension, that’s a cap worth factoring into longer-term planning.
All three options need proper timing. Pension contributions must be made by 5 April to count for that tax year, and Gift Aid donations should be properly documented at the time. Last-minute decisions in March often work less well than a structure planned at the start of the tax year.
What’s Coming in April 2027
One change worth flagging now, even though it doesn’t apply for 2026/27. From April 2027, the order in which the Personal Allowance is applied is changing. It will be applied to:
- Earned income first: Employment, self-employment and pension income.
- Then to property income: Rental profits and similar.
- Finally to savings and dividend income: What’s left of the allowance, if any.
This doesn’t change the size of the allowance itself. But it can change which income uses it first. For people with a mix of earned income and unearned income, more of the unearned side could end up taxed at the new 2027 rates – property, savings and dividend income are also moving to separate basic, higher and additional rates of 22%, 42% and 47% respectively.
The combined effect for landlords and investors with PAYE earnings could be substantial. If that’s you, it’s worth modelling the position now rather than waiting for April 2027 to find out.
How Double Point Can Help
The Personal Allowance looks simple on paper – £12,570, no tax below it. The reality for higher earners, married couples and anyone with multiple income sources is more nuanced, and getting it wrong by a few hundred pounds can cost a great deal once the taper bites.
At Double Point, our chartered accountants offer tax planning for individuals and business owners across the UK, including managing the £100,000 threshold, claiming Marriage Allowance and other reliefs, and structuring pension contributions to keep more income tax-free.
Book a free consultation and we’ll look at your position for 2026/27 and find the simplest way to make the allowance work harder for you.