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The UK Personal Allowance 2025/2026: 5 Critical Facts You Must Know About The Extended Tax Freeze

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As of late 2025, the UK tax landscape for the 2025/2026 financial year remains dominated by a policy decision that continues to impact millions of taxpayers: the extended freeze on the Income Tax Personal Allowance. This article provides a deep dive into the confirmed facts and figures for the 2025/2026 tax year, running from 6 April 2025 to 5 April 2026, ensuring you have the most current and relevant information to manage your personal finances and tax planning.

The standard tax-free Personal Allowance is a critical component of the UK Income Tax system, representing the amount of income an individual can earn before they start paying tax. However, for the 2025/2026 tax year, this figure is not increasing, a move that forms part of a longer-term government strategy to raise tax revenue without explicitly increasing tax rates. Understanding the implications of this freeze is essential for anyone earning a salary, running a business, or managing investments.

The Confirmed UK Personal Allowance and Tax Thresholds for 2025/2026

The UK Income Tax system for the 2025/2026 tax year is defined by a set of frozen thresholds. This stability in the figures, while offering certainty, has a significant fiscal impact on taxpayers as wages and inflation rise.

1. The Standard Personal Allowance is Frozen at £12,570

For the 2025/2026 tax year, the standard Personal Allowance (PA) remains fixed at £12,570. This figure has been frozen since the 2021/2022 tax year and is currently scheduled to remain at this level until April 2028, and in some more recent proposals, potentially until the 2030/2031 tax year.

  • What it means: You do not pay Income Tax on the first £12,570 of your taxable income.
  • The Context: The Personal Allowance is the cornerstone of tax-free earnings for the vast majority of UK residents. Its freeze means that as salaries increase due to inflation or pay rises, a larger proportion of that income becomes taxable, a phenomenon known as 'fiscal drag'.

2. The Higher Rate Threshold (HRT) is Also Frozen

The Income Tax bands, which dictate the rate of tax you pay, are also frozen for the 2025/2026 tax year. The most critical threshold for middle and higher earners is the Higher Rate Tax threshold.

  • Basic Rate (20%): Applies to income between £12,571 and £50,270.
  • Higher Rate (40%): Applies to income between £50,271 and £125,140.
  • Additional Rate (45%): Applies to income over £125,140.

The freeze on the Higher Rate Threshold (HRT) at £50,270 means that more people are being pulled into the 40% tax bracket each year. This is a key element of 'fiscal drag' where the government increases its tax revenue without changing the headline tax rates.

The Critical Impact of the Personal Allowance Tapering

While the £12,570 Personal Allowance applies to most taxpayers, it begins to disappear once an individual's income reaches a certain level. This mechanism is crucial for high earners to understand, as it can result in a marginal tax rate significantly higher than the standard 40% or 45%.

3. The Allowance Tapers Away at £100,000

The Personal Allowance is reduced, or 'tapered', for individuals whose adjusted net income exceeds £100,000. This is a gradual withdrawal, not a sudden loss.

  • The Withdrawal Rate: For every £2 earned over the £100,000 threshold, the Personal Allowance is reduced by £1.
  • The Tapering Trap: This creates a highly punitive marginal tax rate in the income band between £100,000 and £125,140. Within this bracket, you are effectively paying 40% Income Tax on your earnings, plus an additional 'tax' from the loss of your tax-free allowance. This combined effect can lead to a marginal tax rate of 60% on that portion of income.
  • Zero Allowance Point: The Personal Allowance is completely withdrawn once an individual’s adjusted net income reaches £125,140. At this point, the entire income is subject to tax at the relevant band rates.

Leveraging Related Allowances: Marriage and Blind Person’s Allowance

Beyond the standard Personal Allowance, several other tax-free allowances exist that can be combined with the PA to further reduce your tax bill. These figures are also confirmed for the 2025/2026 tax year.

4. Marriage Allowance Remains a Key Tax Saver

The Marriage Allowance is a valuable tax break that allows a non-taxpayer (or basic rate taxpayer) to transfer a portion of their unused Personal Allowance to their spouse or civil partner, provided the recipient is a basic rate taxpayer.

  • Transferable Amount: For 2025/2026, the amount of Personal Allowance that can be transferred is £1,260.
  • Maximum Tax Saving: Since this transferred allowance is taxed at the basic rate of 20%, the maximum tax saving for the recipient couple is £252 per tax year.
  • Eligibility Check: The spouse/partner transferring the allowance must have an income below the Personal Allowance (£12,570), and the recipient spouse/partner must be a Basic Rate taxpayer (income below £50,270).

5. Blind Person’s Allowance (BPA) is Set at £3,130

The Blind Person's Allowance (BPA) is an additional tax-free allowance for registered blind individuals across the UK.

  • BPA Amount: For the 2025/2026 tax year, the Blind Person's Allowance is £3,130.
  • How it Works: This amount is added to the individual's standard Personal Allowance. For example, a blind person would have a total tax-free allowance of £12,570 + £3,130 = £15,700 for the 2025/2026 tax year.
  • Transferability: If the individual does not use all of their BPA, they can transfer the unused portion to their spouse or civil partner.

The Long-Term Impact: Fiscal Drag and Tax Planning

The consistent freeze of the Personal Allowance at £12,570, alongside the freezing of the Higher Rate Threshold, is a deliberate fiscal policy with a profound long-term effect. This mechanism, known as 'fiscal drag', is expected to pull millions of people into paying income tax for the first time or into the higher 40% tax bracket.

As wages generally rise with inflation, the static tax thresholds mean that a greater portion of a person's income is taxed at 20% or 40%. This is arguably the most significant factor for UK taxpayers in the 2025/2026 tax year, as it quietly increases the tax burden on households across the income spectrum.

Key Entities and Topics for Tax Planning in 2025/2026

To mitigate the effects of the freeze and maximise your tax efficiency, consider the following related entities and planning strategies:

  • Pension Contributions (Salary Sacrifice): Making additional contributions reduces your 'adjusted net income', which can be a highly effective way to avoid the 60% marginal tax rate trap between £100,000 and £125,140.
  • ISA Allowance: The Individual Savings Account (ISA) allowance remains a crucial tax shelter. Income and gains within an ISA are free from Income Tax and Capital Gains Tax (CGT).
  • Dividend Tax Allowance: Understanding the Dividend Tax Allowance is essential for investors and company directors, as this is also subject to change and freeze policies.
  • Capital Gains Tax (CGT) Allowance: The CGT annual exempt amount is another key entity to monitor, as reductions here also increase the tax burden on investors.
  • Gift Aid: Utilising Gift Aid on charitable donations can extend your basic rate band, effectively giving you tax relief at the higher rate if you are a 40% taxpayer.
  • Adjusted Net Income (ANI): Crucial for determining Personal Allowance tapering, ANI is calculated by taking your total income and deducting certain reliefs, such as grossed-up pension contributions.
  • High Income Child Benefit Charge (HICBC): This charge starts to apply when one parent's income exceeds £50,000, and is another frozen threshold that contributes to fiscal drag.

In summary, the 2025/2026 tax year is not about new tax allowances but about the sustained impact of frozen thresholds. The Personal Allowance of £12,570 is a fixed figure, making proactive tax planning more important than ever to ensure you are not unnecessarily caught by the effects of fiscal drag.

The UK Personal Allowance 2025/2026: 5 Critical Facts You Must Know About the Extended Tax Freeze
uk personal allowance 2025
uk personal allowance 2025

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