How the personal allowance works
Each tax year you can earn up to your personal allowance before any Income Tax is due. For 2026/27 the standard personal allowance is £12,570 — the same as it has been since 2021/22, when the government froze it. The freeze is currently legislated to continue until 6 April 2031.
In practice, this means you can have:
- A salary of up to £12,570 a year, with zero Income Tax due
- A salary above £12,570, with the first £12,570 protected and only the remainder taxed
- Multiple income sources, where the allowance is typically applied to the largest one
Your employer applies the allowance via your tax code. The standard code 1257L tells them to treat the first £12,570 of your annual salary as tax-free.
The £100,000 taper
Once your adjusted net income exceeds £100,000, your personal allowance reduces by £1 for every £2 of income above £100,000. The allowance is fully gone at £125,140.
This creates an effective marginal tax rate of 60% between £100,000 and £125,140:
- 40% Income Tax on the slice
- Plus 20% effective rate from losing 50p of personal allowance per £1 of income — that 50p would have been worth 20% in tax saved, so losing it adds 10% effective rate, but it's compounded by the higher-rate band reaching further down (net effect: 20% added)
- Plus 2% NI
This is what's commonly called the 60% trap or personal allowance taper trap. Sacrificing salary into a pension (which reduces adjusted net income) is the standard way of escaping it.
For Scottish taxpayers, the trap is even sharper at 67.5% because the Advanced rate (45%) applies in this band, not the rUK Higher rate (40%).
The personal allowance freeze
Until 2021/22, the personal allowance had increased each year roughly in line with inflation. The Conservative government's March 2021 Budget froze it at £12,570 through to April 2026. The current government extended the freeze to April 2031 in the Autumn 2024 Budget.
This is sometimes called fiscal drag — as wages rise but the allowance doesn't, more people are pulled into paying tax for the first time, and more low-paid earners are pulled into the basic-rate band on a larger slice of their income.
How the allowance interacts with other income
The personal allowance applies to all taxable income combined — salary, pensions, interest, dividends, rental income. If you have multiple income sources:
- Pensions and salary are aggregated for tax-band purposes
- Bank interest gets its own £1,000 (basic-rate) or £500 (higher-rate) personal savings allowance on top of the personal allowance
- Dividends get a separate £500 dividend allowance for 2026/27
So a basic-rate taxpayer can earn £12,570 in salary, then £1,000 in bank interest, then £500 in dividends — all tax-free — before any other tax considerations.