The UK Personal Allowance 2025/2026: The Shocking Freeze Extended To 2031 And What It Means For Your Tax Bill
As of December 2025, the UK’s tax landscape for the 2025/2026 financial year is defined by a single, immovable figure: the Personal Allowance (PA). This is the amount of income you can earn before you start paying Income Tax, and for the tax year beginning on 6 April 2025, it is confirmed to remain at £12,570. This is not a new figure; it has been frozen at this level since April 2021, a policy decision that is having a profound and growing impact on millions of UK taxpayers.
The crucial, and perhaps most significant, update regarding the Personal Allowance is the official extension of the freeze. Initially set to end in April 2026, the government has since confirmed that the PA, along with the Basic Rate Limit, will be maintained at its current level until 5 April 2031. This unprecedented extension means the £12,570 threshold will be locked in for a full decade, creating a massive shift in the effective tax burden for workers across all income brackets.
The Confirmed UK Personal Allowance and Tax Thresholds for 2025/2026
The Personal Allowance is the cornerstone of the UK's Income Tax system. For the 2025/2026 tax year (6 April 2025 to 5 April 2026), the figures are fixed. Understanding these statutory thresholds is essential for effective financial planning, especially given the prolonged freeze.
- Standard Personal Allowance (PA): £12,570.
- Income Limit for Personal Allowance: £100,000.
- Personal Allowance Tapering: The PA is reduced by £1 for every £2 of net income over £100,000. This means the allowance is completely lost once your income reaches £125,140.
Income Tax Rates and Bands (England, Wales, and Northern Ireland)
The Personal Allowance directly determines the starting point for all Income Tax bands. Since the PA and the Basic Rate Limit are frozen, the tax bands for 2025/2026 remain unchanged from previous years.
| Tax Rate | Tax Band (Taxable Income) | Total Income Threshold (PA + Band) |
|---|---|---|
| Starter Rate (0%) | £0 to £12,570 | Up to £12,570 |
| Basic Rate (20%) | £12,571 to £50,270 | £12,571 to £50,270 |
| Higher Rate (40%) | £50,271 to £125,140 | £50,271 to £125,140 |
| Additional Rate (45%) | Above £125,140 | Above £125,140 |
Note: Scottish Income Tax rates and bands differ from the rest of the UK and are set by the Scottish Parliament.
The Hidden Tax Hike: Understanding Fiscal Drag
The decision to freeze the Personal Allowance at £12,570 until 2031 is not merely a stagnation of the tax system; it is a mechanism known as fiscal drag. This is the single most important concept to grasp when assessing the impact of the 2025/2026 tax year.
What is Fiscal Drag?
Fiscal drag occurs when income tax thresholds are not increased in line with inflation and wage growth. In a typical year, the Personal Allowance would be indexed to rising prices to ensure that the average worker's tax burden remains constant in real terms. By freezing the PA, two major effects take place simultaneously:
- More People Pay Tax: As wages increase due to inflation, more low-income earners find their pay crossing the £12,570 threshold, pulling them into the tax system for the first time.
- More People Pay Higher Tax: Middle and high earners whose salaries rise are pushed into the 40% Higher Rate tax band more quickly. Because the £50,270 Higher Rate Threshold is also frozen, a smaller real-terms pay rise can result in a much larger proportion of their income being taxed at the higher rate.
The cumulative effect of the freeze, which will last for a decade, is a substantial and unlegislated increase in the overall tax burden on UK households. Economists estimate that fiscal drag will bring millions of people into the tax system or into higher tax brackets by the time the freeze is scheduled to end.
Strategies to Mitigate the Tax Burden in 2025/2026
Given the certainty of the frozen Personal Allowance and the extended duration of the freeze, taxpayers must proactively look for ways to maximise their tax efficiency. Financial planning in the 2025/2026 tax year revolves around utilising other available tax-advantaged vehicles.
1. Maximise Pension Contributions
Contributing more to a personal or workplace pension is one of the most effective ways to reduce your taxable income. Pension contributions are typically made gross of tax, meaning they reduce your taxable income and can help you:
- Keep your income below the £50,270 Higher Rate Threshold, avoiding the 40% tax rate on a portion of your earnings.
- For high earners, contributions can be used to keep your income below the £100,000 threshold, preventing the loss of your Personal Allowance due to the tapering rule.
2. Utilise ISA Allowances
The Individual Savings Account (ISA) allowance for 2025/2026 is expected to remain at £20,000. All income and gains within an ISA—whether from a Cash ISA, Stocks and Shares ISA, or Lifetime ISA—are completely tax-free. This is crucial for shielding savings and investment growth from Income Tax, Capital Gains Tax, and Dividend Tax.
3. Capitalise on Spousal Transfers and Marriage Allowance
For married couples or those in a civil partnership where one partner earns less than the Personal Allowance (£12,570) and the other is a Basic Rate taxpayer, the Marriage Allowance can be claimed. This allows the lower-earner to transfer 10% of their PA (£1,260) to the higher-earner. This transfer can reduce the couple’s total tax bill by up to £252 per year, a vital piece of tax relief that is often overlooked.
4. Review Dividend and Savings Allowances
The Dividend Allowance (expected to be £500) and the Personal Savings Allowance (up to £1,000 for Basic Rate taxpayers) are separate tax-free allowances. Taxpayers should ensure they are utilising these allowances before investing outside of tax wrappers like ISAs. The reduction of the Dividend Allowance makes it even more important to hold dividend-paying assets within an ISA.
Conclusion: The Certainty of the Freeze
The 2025/2026 tax year is defined by stability in the tax code, but this stability masks a significant real-terms increase in the tax burden due to the extended Personal Allowance freeze. The £12,570 Personal Allowance is certain, and the impact of fiscal drag will continue to be felt by millions of UK workers who will pay more tax, or start paying tax, as their wages rise. The current date confirms that taxpayers must take proactive steps now to manage their finances, with pension contributions and ISA utilisation being the most powerful tools against the long-term effects of the freeze until 2031.
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