HMRC Tax-Free Allowance 2025/26: Essential Guide for UK Taxpayers

Understanding HMRC’s Tax-Free Personal Allowance

The main allowance is a tax-free amount known as the ‘personal allowance’, which is GBP 12,570 in 2025/26. This fundamental provision by HM Revenue & Customs (HMRC) ensures that individuals can earn up to this threshold without paying any income tax, providing crucial financial relief for millions of UK taxpayers.

The tax-free allowance for Income Tax is remaining at £12,570 until at least April 2028. This freeze, which has been in effect since 2021, represents a significant policy decision that impacts household finances across the nation, particularly during times of rising living costs and wage growth.

Who Qualifies for the Personal Allowance?

While most UK residents benefit from the standard personal allowance, most individuals can claim a personal allowance, unless their income is over GBP 125,140. The allowance operates on a tapering system for higher earners: if your income is over GBP 100,000, your personal allowance will be reduced by GBP 1 for every GBP 2 that your income exceeds GBP 100,000. This means those earning £125,140 or more receive no personal allowance at all.

Tax Rates Beyond the Allowance

Once your income exceeds the £12,570 threshold, income tax applies at graduated rates. A basic rate of 20% applies on earnings between £12,571 and £50,270, a higher rate of 40% on earnings between £50,271 and £125,139, and an additional rate of 45% on earnings exceeding £125,140. Understanding these bands helps taxpayers plan their finances effectively and maximise tax efficiency.

Additional Tax-Free Allowances to Consider

Beyond the personal allowance, UK taxpayers can benefit from several other tax-free provisions. You can now have tax-free dividend income of up to £500. Additionally, individuals now have a tax-free Capital Gains Tax allowance of £3,000. Married couples or civil partners can also take advantage of the marriage allowance, which allows you to transfer up to £1,260 of your personal allowance to your spouse.

Significance for UK Taxpayers

The continuation of the frozen personal allowance until 2028 means more individuals will be drawn into higher tax brackets as wages increase with inflation—a phenomenon known as fiscal drag. For taxpayers, understanding your HMRC tax-free allowance is essential for accurate financial planning, ensuring compliance, and avoiding unexpected tax bills. Regularly reviewing your tax code and allowances with HMRC can help you maximise your take-home pay and avoid overpaying tax.