The UK personal allowance is £12,570 for the 2026/27 tax year - the amount of income you can earn before paying any income tax. Above that, three rate bands apply. There is also a hidden 60% marginal rate between £100,000 and £125,140 that most people don't know about.
For the 2026/27 tax year you pay no income tax on your first £12,570. Above that, three rate bands apply. Income above £100,000 triggers a personal-allowance taper that creates an effective 60% marginal rate between £100,000 and £125,140.
0% tax - tax-free
20% tax on income in this band
40% tax on income in this band
45% tax on income above
Authoritative source: gov.uk - Income Tax rates and Personal Allowances
The published rates above are only part of the picture. Once your adjusted net income exceeds £100,000, you start losing your personal allowance - £1 of allowance for every £2 of income over £100,000. The combined effect is a hidden 60% marginal rate that catches many high earners by surprise.
At £100,000 of income you have the full £12,570 personal allowance. At £125,140 of income, your personal allowance is reduced to zero (£25,140 over the limit ÷ 2 = £12,570 lost).
So between £100,000 and £125,140 you pay 40% on each additional pound earned, AND you pay an extra 20% tax on the personal allowance you're losing. Effective marginal rate: 60% - the highest in the UK income tax system.
Sarah earns £110,000 in 2026/27. She has lost £5,000 of personal allowance (£10,000 over £100,000 ÷ 2).
Her remaining personal allowance: £12,570 − £5,000 = £7,570. The other £5,000 is now taxed at the basic rate (an extra £1,000 of tax) PLUS her additional £10,000 of earnings was already taxed at 40% (£4,000). Effective marginal tax on her £10,000 over £100k: £6,000 = 60%.
Self-employed Class 4 NI: 6% on profits between £12,570 and £50,270; 2% above. Class 2 NI for self-employed was effectively abolished from April 2024 (paid voluntarily only, to retain State Pension contribution).
Yes - for income tax purposes. Your first £12,570 each tax year is covered by the personal allowance and bears no income tax. National Insurance is separate (and has its own threshold). The personal allowance is given automatically through your tax code - 1257L is the default code for most employees, where the "1257" reflects the £12,570 allowance.
Pensioners get the same £12,570 personal allowance as everyone else - there's no special age-related higher allowance any more (the historical age allowance ended for those born after 5 April 1948). State Pension counts as taxable income and is paid gross. With the full new State Pension at around £230 per week (~£11,975 per year), most pensioners have around £600 of remaining allowance before they start paying tax on private pension or other income.
You stop paying Class 1 NI (employed) and Class 4 NI (self-employed) when you reach State Pension Age - currently 66, rising to 67 between 2026 and 2028, and to 68 in the 2040s. Class 2 NI for the self-employed was effectively abolished from April 2024. Income Tax does not stop at State Pension Age - pensioners still pay income tax on any income above the personal allowance.
The trading allowance is £1,000 per tax year. If your gross self-employment income is £1,000 or less, you don't need to register or file a Self Assessment return. Above £1,000 you must register with HMRC by 5 October following the end of the tax year and file Self Assessment. A separate £1,000 property allowance applies to rental income.
The dividend allowance is £500 per tax year - down from £1,000 in 2023/24 and £2,000 before that. Dividends within the £500 are tax-free. Above £500, dividends are taxed at 8.75% (basic rate), 33.75% (higher rate), or 39.35% (additional rate). This matters most for owner-managed company directors who extract profit via dividends.
The personal allowance (£12,570) and the basic-rate band threshold (£50,270) have been frozen until at least April 2028. This is sometimes called fiscal drag - as wages rise with inflation, more people are dragged into higher tax bands without any change in headline rates. The freeze affects every UK taxpayer.
Common approaches: pension contributions (extends your basic-rate band and reduces adjusted net income to escape the £100k taper), Gift Aid donations (same effect), ISAs (interest/dividends inside an ISA wrapper are tax-free), marriage allowance transfer, and for owner-managed company directors, optimising salary vs dividend extraction. Talk to us about a tailored plan.
Every answer above is anchored to specific UK legislation. Below are the primary sources.
Personal allowance: Income Tax Act 2007 (c. 3) s.35
£100k taper: Income Tax Act 2007 (c. 3) s.35(2A)–(2B) - inserted by Finance Act 2009 s.4
Freeze to April 2028: Finance (No. 2) Act 2023 (c. 30) s.5
Income tax bands & rates: Income Tax Act 2007 (c. 3) Part 2, Chapter 2
Trading allowance: ITTOIA 2005 (c. 5) s.783A - inserted by Finance (No. 2) Act 2017 s.17
Dividend allowance: Income Tax Act 2007 (c. 3) s.13A
HMRC guidance: gov.uk - Income Tax rates and Personal Allowances
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