The tax year has started, and with it comes the usual resets, but not everything has changed. The Personal Allowance remains at £12,570 for the 2026-27 tax year, and it’s frozen for years to come. Here’s what this means for your pay and taxes.
What Is the Personal Allowance?
The Personal Allowance is the amount of income you can earn without paying any Income Tax. For most workers in the UK, this amount is £12,570 for the 2026-27 tax year. Any income above that amount is taxed at 20%, the basic rate of income tax.
While this might sound simple, the freeze on this allowance means workers could face higher taxes, even if their salaries go up.
The Impact of Fiscal Drag
Here’s where things get a bit tricky. Thanks to something called “fiscal drag,” as inflation pushes wages up, the £12,570 threshold doesn’t keep up. This means that more of your pay will be taxed.
For example, if you receive a salary increase but the allowance stays the same, you’ll pay 20% tax on the extra money, explains Express. It might not seem like a lot, but over time, it adds up, especially as your salary grows but the threshold remains stuck in place.
How Much Will You Pay?
Let’s say you earn £35,000 in 2026-27. After the £12,570 tax-free allowance, you’ll pay 20% tax on the remaining £22,430, which comes to £4,486. If your salary increases by £1,000, you’ll pay 20% on that, losing £200 straight to tax. It’s a subtle way of raising taxes without actually changing the rates, this is the essence of fiscal drag.
The big news here is that these thresholds are frozen until 2031. Yes, you read that right. That means for the next five years, your tax-free allowance won’t change. This freeze can have a serious effect on take-home pay, as the cost of living rises but the amount you get to keep tax-free stays the same.
The Bigger Picture
While the Personal Allowance freeze might seem like a minor detail, it’s part of a bigger picture. Higher earners will be taxed more as their salaries push them into higher brackets.
Those earning over £50,270 will start paying the 40% higher rate tax, and if you earn over £100,000, your Personal Allowance starts to shrink, leading to an effective tax rate of 60%. The freeze affects everyone, not just those at the very top.
What Experts Are Saying
Money expert Martin Lewis highlighted fiscal drag as one of the biggest tax rises affecting the average worker right now. While it doesn’t look as dramatic as a formal rate hike, it can feel just as painful when your salary increase is effectively eaten up by taxes.
