Personal Allowance

What Is the Personal Allowance?

The personal allowance is the amount of income a taxpayer can receive each year without paying any income tax on it. It is subtracted from gross income before the progressive tax brackets apply, reducing the taxable income base.

The term is used primarily in the United Kingdom and Ireland, though equivalent concepts exist in most tax systems worldwide under different names: the standard deduction in the US, the basic personal amount in Canada, the tax-free threshold in Australia, and personal exemptions or basic exemptions in India and other countries.

UK Personal Allowance 2026/27

For the 2026/27 tax year, the UK personal allowance is £12,570.

This means:

• Income up to £12,570: taxed at 0%
• Income £12,571 – £50,270: taxed at 20% (Basic Rate)
• Income £50,271 – £125,140: taxed at 40% (Higher Rate)
• Income above £125,140: taxed at 45% (Additional Rate)

A UK employee earning £35,000 pays income tax on only £22,430 (£35,000 − £12,570), not on the full £35,000.

The High-Income Taper

The UK personal allowance is tapered away for high earners. For every £2 of adjusted net income above £100,000, the personal allowance is reduced by £1. This means:

• At £100,000: full £12,570 allowance
• At £112,570: zero personal allowance
• At £125,140 and above: no allowance at all

This taper creates an effective marginal tax rate of 60% in the £100,000 – £125,140 band (40% income tax + 20% from the allowance withdrawal + 2% NI reduction), making pension contributions particularly valuable in this range.

Adjusting Your Allowance

The personal allowance can be modified in several ways:

• Marriage Allowance: A non-taxpayer can transfer £1,260 of their allowance to a basic-rate taxpayer spouse, saving up to £252/year.
• Blind Person’s Allowance: An additional £3,070 for registered blind persons.
• Gift Aid: Charitable donations extend the basic-rate band, effectively preserving allowance for higher earners.

Ireland Personal Tax Credits (2026)

Ireland uses a different approach: rather than a direct income allowance, it uses tax credits that reduce the tax bill directly.

• Personal Tax Credit: €1,875 per year (single)
• Employee Tax Credit: €1,875 per year
• Combined: €3,750, equivalent to allowing roughly €18,750 of income at 20% to be tax-free

The effect is similar to a personal allowance: most Irish employees pay no income tax on roughly the first €18,000–€20,000 of earnings.

India Basic Exemption Limit

India uses the term “basic exemption limit” for a similar concept:

• New Regime (2026-27): ₹3,00,000 — no tax below this
• Old Regime (2026-27): ₹2,50,000 — no tax below this
• Senior citizens (old regime): ₹3,00,000
• Super senior citizens (80+, old regime): ₹5,00,000

Additionally, India’s Section 87A rebate effectively makes income up to ₹7,00,000 (new regime) or ₹5,00,000 (old regime) fully tax-free for most taxpayers.

Equivalent Concepts by Country

Country	Name	Amount (2026)
United Kingdom	Personal Allowance	£12,570
Ireland	Personal + Employee Tax Credit	~€18,750 equivalent
India (new regime)	Basic Exemption Limit	₹3,00,000
United States	Standard Deduction	$14,600 (single)
Canada	Basic Personal Amount	CA$15,705
Australia	Tax-Free Threshold	A$18,200
New Zealand	No direct allowance	(low-income rebate instead)
Singapore	Personal Relief	S$1,000
South Africa	Primary Rebate	R17,235 (rebate, not deduction)

Why Frozen Allowances Matter

The UK’s personal allowance has been frozen at £12,570 since April 2021, with the freeze now extended through April 2028. As wages rise with inflation, more workers are pulled into income tax for the first time — a phenomenon called fiscal drag or bracket creep.

Economists estimate this freeze is equivalent to a significant stealth tax rise. Between 2022 and 2028, millions of additional UK taxpayers will cross the £12,570 threshold or enter the higher-rate band for the first time, simply because the threshold did not move with inflation.

Practical Tips

1. Check your tax code (UK): HMRC issues a tax code that encodes your allowance. The standard code is 1257L (representing £12,570). Errors in the code cause over- or under-payment.
2. Pension contributions (UK): Contributions to a workplace or private pension scheme increase your effective available allowance by lowering adjusted net income — critical for those near the £100,000 taper threshold.
3. Marriage Allowance: If one partner earns below £12,570 and the other is a basic-rate taxpayer, the Marriage Allowance transfer saves up to £252/year and can be backdated four years.

Key Takeaway

The personal allowance is the foundation of progressive income tax — the zero-rate band that ensures low earners pay little or no tax. In the UK it is £12,570 for 2026/27, tapering to zero for incomes above £100,000. Use the UK income tax calculator to see exactly how your personal allowance interacts with your salary.