Personal Allowance & Tax Codes Guide 2025-26
Understanding your personal allowance and tax codes - the key building blocks of UK taxation
Key Facts for 2025-26
Basic Personal Allowance
£12,570 per year (unchanged from 2024-25)
Most Common Tax Code
1257L for most employees
High Income Reduction
Reduced by £1 for every £2 over £100,000
Complete Loss
No allowance if income exceeds £125,140
What is Personal Allowance?
Personal allowance is the amount of income you can earn each year before you start paying Income Tax. For the 2025-26 tax year, the standard personal allowance is £12,570.
This means if you earn £12,570 or less per year, you won't pay any Income Tax. If you earn more than £12,570, you only pay tax on the amount above this threshold.
Example Calculation
Annual Salary: £25,000
Less Personal Allowance: £12,570
Taxable Income: £12,430
Income Tax: £12,430 × 20% = £2,486
Understanding Tax Codes
Your tax code tells your employer how much tax to deduct from your pay. It's usually made up of numbers followed by letters.
Common Tax Codes
1257L
Standard tax code for 2025-26. The number 1257 represents your personal allowance (£12,570) with the last digit removed.
BR
Basic Rate - all income taxed at 20%. Often used for second jobs or pensions.
D0
Higher Rate - all income taxed at 40%. Used when your total income puts you in the higher rate band.
D1
Additional Rate - all income taxed at 45%. Used for very high earners.
0T
No personal allowance available. Often used when income exceeds £125,140.
Calculate Your Take-Home Pay
See exactly how your personal allowance and tax code affect your take-home pay with our comprehensive calculator.
Try Our CalculatorComplete Guide to UK Personal Allowances and Tax Codes
How Personal Allowances Work in Practice
Personal allowances form the foundation of the UK tax system, providing every individual with a tax-free income threshold that recognizes basic living costs. The £12,570 personal allowance for 2025-26 has been frozen since 2021, which in real terms represents a reduction due to inflation. Understanding how this allowance interacts with your total income, other allowances, and deductions is crucial for effective tax planning and maximizing your take-home pay.
Personal Allowance Tapering for High Earners
The personal allowance is gradually reduced for individuals with adjusted net income exceeding £100,000 annually. For every £2 of income above this threshold, the personal allowance decreases by £1, creating an effective marginal tax rate of 60% for income between £100,000 and £125,140. This occurs because higher-rate taxpayers lose £1 of 40% tax relief for every £2 of additional income, while simultaneously paying 40% tax on that additional income.
Personal Allowance Tapering Examples
- • Excess over £100,000: £10,000
- • Allowance reduction: £5,000 (£10,000 ÷ 2)
- • Remaining allowance: £7,570
- • Effective marginal rate: 60%
- • Excess over £100,000: £30,000
- • Allowance reduction: £15,000 (complete loss)
- • Remaining allowance: £0
- • All income taxable from £0
Strategy: High earners often use pension contributions to reduce adjusted net income below £100,000 and preserve their personal allowance.
Maximizing Personal Allowance Efficiency
For individuals approaching the £100,000 threshold, strategic planning can preserve the personal allowance through pension contributions, charitable donations, or other allowable deductions. Contributing £10,000 to a pension when earning £110,000 not only provides tax relief on the contribution but also preserves £5,000 of personal allowance that would otherwise be lost, effectively providing additional tax savings of £2,000.
Important Disclaimer for Personal Allowance Planning
This guide provides general information about UK personal allowances and tax codes based on current legislation for 2025-26. Individual circumstances vary significantly and can affect allowance entitlements, tax code calculations, and optimal planning strategies.
For specific advice regarding complex tax situations, multiple income sources, or strategic tax planning involving allowances, consult with qualified tax professionals or contact HMRC directly. Tax codes and allowance rules are subject to change, and individual circumstances may require specialized consideration beyond general guidance.