UK Personal Allowance 2025/2026: The £12,570 Freeze Explained—And What It REALLY Means For Your Paycheck
The UK Personal Allowance (PA) for the 2025/2026 tax year is officially confirmed to remain frozen at £12,570. This critical figure, which represents the amount of income you can earn before paying any Income Tax, has been held at the same level since the 2021/2022 tax year and is set to continue as part of a long-term government strategy that extends the freeze until at least April 2028.
For taxpayers across England, Northern Ireland, and Wales, this continued freeze—coupled with inflation and wage growth—is the primary mechanism behind what financial experts call "fiscal drag," a powerful, quiet tax increase that pulls more and more workers into higher tax brackets. As the calendar turns to the new tax year on 6 April 2025, understanding these frozen thresholds is essential for effective financial planning and managing your household budget.
The Official UK Income Tax Thresholds for 2025/2026 (England, NI, and Wales)
The Personal Allowance freeze is part of a wider policy to hold all major Income Tax thresholds at their current levels. This means that as wages rise due to inflation, a larger proportion of income is taxed, and more people are dragged into the 40% Higher Rate band. The following figures apply for the 2025/2026 tax year (6 April 2025 to 5 April 2026) for taxpayers in England, Northern Ireland, and Wales.
- Standard Personal Allowance (PA): £12,570 (Tax-free income)
- Basic Rate Band (20%): £12,571 to £50,270 (Taxable income up to £37,700)
- Higher Rate Threshold (40%): £50,271 to £125,140
- Additional Rate Threshold (45%): Above £125,140
The Personal Allowance Taper: The £100,000 Stealth Tax
A crucial entity to understand is the Personal Allowance taper for high earners. If your adjusted net income exceeds £100,000, your Personal Allowance is reduced by £1 for every £2 earned over that threshold.
This creates a highly punitive effective tax rate of 60% on income between £100,000 and £125,140. At an income of £125,140 or above, your Personal Allowance is completely wiped out (reduced to zero). This threshold has also been frozen, significantly increasing the number of professionals and senior employees caught by this steep tax trap.
Understanding Fiscal Drag: The True Cost of the Freeze
The decision to freeze the Personal Allowance and the Income Tax thresholds is not a neutral act; it is a significant revenue-raising measure known as fiscal drag.
Fiscal drag occurs when the government keeps tax thresholds fixed while average wages and prices rise due to inflation. As your salary increases to keep pace with the cost of living, more of your income is pushed into the taxable band (above £12,570), or worse, into the 40% Higher Rate band.
In essence, you feel poorer because your tax bill is taking a larger slice of your income, even if your real-terms purchasing power hasn't improved. The freeze, which was extended in the Autumn Budget 2025, is now set to run until at least the 2027/2028 tax year, making it one of the most substantial "stealth taxes" in recent UK history.
Key Financial Entities Affected by the Freeze
The frozen PA has ripple effects across several other tax and benefit entities:
- High Income Child Benefit Charge (HICBC): The HICBC threshold is closely linked to the higher rate tax threshold. While there were no immediate changes announced for 2025/2026, the frozen thresholds mean more families will be caught by this charge as their income rises.
- Pension Annual Allowance: The standard Annual Allowance remains at £60,000, but the frozen thresholds mean that more workers will need to be mindful of their pension contributions to avoid triggering the tapered annual allowance or lifetime allowance issues.
- Savings Allowance: The Personal Savings Allowance (PSA) remains at £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. The frozen PA means more income is taxed, potentially pushing non-taxpayers into the basic rate band and reducing their PSA from the full £1,000 to zero.
- Dividend Allowance: The Dividend Allowance is a tax-free amount on dividend income. It is set to remain at £500 for 2025/2026, a significant drop from previous years, increasing the tax burden on investors and small business owners.
The Scottish Tax Difference: Diverging Rates for 2025/2026
It is critical for Scottish taxpayers to note that while the UK Personal Allowance (£12,570) is set by the UK government and applies across the whole country, the Income Tax rates and bands on non-savings and non-dividend income are set by the Scottish Government.
The devolution of tax powers means Scottish taxpayers face a different, more complex tax structure with five distinct bands and potentially higher tax bills than their counterparts in the rest of the UK, particularly for middle and higher earners.
The key Scottish Income Tax bands for the 2025/2026 tax year are:
- Starter Rate (19%): Up to £2,306 (on taxable income)
- Basic Rate (20%): £2,307 to £15,397
- Intermediate Rate (21%): £15,398 to £27,491
- Higher Rate (42%): £27,492 to £75,000
- Top Rate (48%): Above £75,000
This divergence creates a "Scotland tax premium" where a Scottish resident earning, for example, £60,000 will pay significantly more Income Tax than someone on the same salary in Manchester or Belfast.
Other Key Tax and NI Changes for the 2025/2026 Tax Year
Beyond the Personal Allowance, the 2025/2026 tax year brings other important changes that affect take-home pay and employer costs. These entities further shape the overall tax landscape:
National Insurance Contributions (NICs)
While the Personal Allowance is frozen, there have been recent, significant cuts to the main rate of employee National Insurance (Class 1 NICs). However, the Employer Class 1 NICs rate is set to rise to 15% on all earnings above the Secondary Threshold, a major increase in the cost of employment for businesses.
Marriage Allowance
The Marriage Allowance remains available for the 2025/2026 tax year. This allows a spouse or civil partner who earns less than the Personal Allowance (a non-taxpayer) to transfer £1,260 of their unused allowance to their partner, provided the recipient is a basic rate taxpayer. This can result in a tax saving of up to £252 per year.
Blind Person's Allowance
The Blind Person's Allowance is a separate, additional tax-free allowance that can be claimed by registered blind individuals. This allowance is separate from the Personal Allowance and is also subject to annual review.
Capital Gains Tax (CGT) Allowance
The Capital Gains Tax Annual Exempt Amount is another allowance that has been significantly reduced in recent years, impacting investors who sell assets like shares or second homes. For the 2025/2026 tax year, this allowance is expected to remain at a lower level than in previous years, increasing the tax payable on investment gains.
In summary, the £12,570 Personal Allowance freeze for 2025/2026 is the cornerstone of the government's tax policy. It is a calculated move that, while not a direct tax rate hike, guarantees a substantial increase in the overall tax burden on UK households through the subtle mechanism of fiscal drag. Taxpayers should ensure they are aware of these fixed thresholds and explore opportunities like the Marriage Allowance or pension contributions to mitigate the impact on their personal finances.
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