The UK Government’s HM Revenue & Customs (HMRC) has officially confirmed that the tax-free personal allowance will rise to £20,070 for the 2026/27 tax year. This increase allows individuals to earn more income before paying income tax, providing greater financial relief for workers, pensioners, and families. The announcement is part of broader measures aimed at supporting household finances and reducing the overall tax burden.
What Is the Tax-Free Personal Allowance?
The personal allowance is the amount of income an individual can earn each year without paying income tax. Any income above this threshold is taxed according to the current rates: 20% for basic rate, 40% for higher rate, and 45% for additional rate taxpayers.
With the new allowance rising to £20,070, more of your income will be tax-free, which means you can keep more of your earnings each month.
Key Details of the Allowance Rise
| Detail | 2025/26 Allowance | 2026/27 Allowance |
|---|---|---|
| Personal Allowance | £19,520 | £20,070 |
| Income Tax Threshold (Basic Rate) | £50,270 | £50,270 |
| Higher Rate Tax Threshold | £50,271+ | £50,271+ |
| Additional Rate Threshold | £150,000+ | £150,000+ |
This rise means that a basic rate taxpayer can now earn an extra £550 tax-free compared to the previous year.
Who Benefits From the Allowance Increase?
Employees and Self-Employed Individuals
Workers and self-employed people benefit directly from the allowance rise. More of their earnings are untaxed, which can increase take-home pay and improve household budgets.
Pensioners
Those receiving pensions who also have other income sources will see higher tax-free limits, meaning less of their pension is subject to tax.
Families and Couples
Couples using marriage allowance transfers or joint planning will also benefit, as more income can be shielded from tax, making it easier to manage family finances.
How It Affects Your Monthly Income
The allowance increase reduces the taxable portion of income, so most workers will notice slightly higher net pay. For example, someone earning £25,000 annually would previously pay tax on £5,480, but under the new allowance, they pay tax on £4,930, saving approximately £110 per year.
Other Considerations
While the personal allowance has increased, other thresholds such as higher rate and additional rate limits remain unchanged. Individuals earning above these limits will still be taxed at standard rates for income above the thresholds.
It’s important to update payroll systems and check tax codes to ensure the allowance is applied correctly. Employers and HMRC will adjust PAYE calculations to reflect the new allowance automatically.
The increase of the tax-free personal allowance to £20,070 is welcome news for workers, pensioners, and families across the UK. It allows individuals to keep more of their earnings, reduce taxable income, and improve household finances. Anyone planning their budget or reviewing paychecks should factor in the higher allowance to fully understand the financial benefit this change brings.
FAQs
What is the new tax-free personal allowance?
It is £20,070 for the 2026/27 tax year, the amount you can earn without paying income tax.
Who benefits from the increase?
Employees, self-employed individuals, pensioners, and families all benefit as more income becomes tax-free.
How will this affect my monthly pay?
Your taxable income decreases, which can slightly increase monthly take-home pay depending on your earnings.