A personal allowance is the amount of income you can earn each year before income tax kicks in. In the UK, where the term is used officially, the standard Personal Allowance is £12,570 for the 2025–26 tax year.1GOV.UK. Income Tax Rates and Personal Allowances The United States doesn’t use the phrase in its current tax code, but the standard deduction does the same job, shielding between $16,100 and $32,200 of income from federal tax in 2026 depending on your filing status.2Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 Both shield a baseline slice of earnings, but the rules around who qualifies, how the allowance shrinks at higher incomes, and how it reaches your pay differ.
The UK Personal Allowance for 2025–26
Every pound of income up to £12,570 is tax-free. Above that line, income tax applies at the rate for the band your income falls into:
- Basic rate of 20% on taxable income from £12,571 to £50,270
- Higher rate of 40% on taxable income from £50,271 to £125,140
- Additional rate of 45% on taxable income above £125,140
These bands assume you receive the full allowance. If yours is reduced, the boundaries shift.1GOV.UK. Income Tax Rates and Personal Allowances
The £12,570 figure has been frozen since 2021–22.3GOV.UK. Income Tax Rates and Allowances for Current and Previous Tax Years Because wages and prices keep rising while the threshold stays flat, more people are pulled into paying tax or pushed into a higher band without any headline rate change. This effect is often called fiscal drag.
Who Gets the Personal Allowance
UK residents receive the allowance automatically. HMRC decides residence mainly on the number of days you spend in the UK during the tax year, applying a statutory residence test.4GOV.UK. Tax on Foreign Income – UK Residence and Tax Most employees never have to do anything: the allowance is built into their tax code and applied by their employer with each paycheck.
Non-residents can still claim it in specific cases. You qualify if you’re a British citizen, a citizen of a European Economic Area country, or you worked for the UK government at any point during the tax year. You may also qualify under a double-taxation agreement between the UK and your country of residence. Non-residents claim at the end of each tax year by sending Form R43 to HMRC.5GOV.UK. Tax on Your UK Income if You Live Abroad – Personal Allowance Without a qualifying status, tax applies from the first pound of UK income.
The £100,000 Taper
Once your adjusted net income passes £100,000, the Personal Allowance starts shrinking. You lose £1 of allowance for every £2 above the threshold. By £125,140, the whole £12,570 is gone and every pound of income is taxable.1GOV.UK. Income Tax Rates and Personal Allowances
Adjusted net income is your total taxable income minus certain deductions. The two big ones are pension contributions made through relief-at-source schemes and Gift Aid donations to charity.
The 60% Effective Rate Between £100,000 and £125,140
The taper produces a marginal rate that surprises most people who hit it. Every extra £2 above £100,000 costs you £1 of allowance, and that lost £1 then becomes taxable at the 40% higher rate, adding another 20p of tax per £1 earned. Combined with the 40% you already owe on the income itself, the effective marginal rate reaches 60% across this band. A pay rise from £99,000 to £105,000 feels much thinner once more than half of it goes to HMRC.
Keeping Your Adjusted Net Income Below £100,000
Salary sacrifice into a workplace pension is the cleanest tool. The contribution comes out of your gross pay before your income is counted, so it never triggers the taper. Gift Aid donations work in a similar direction, with the gross amount reducing your adjusted net income. Some employers also let staff buy extra annual leave through salary sacrifice, which lowers income the same way. You need to act before the tax year ends on 5 April, because you can’t retroactively rework your adjusted net income after that date.
Extra Allowances You Can Stack On Top
Blind Person’s Allowance
If you’re registered as blind or severely sight-impaired with your local authority, you get an extra £3,130 of tax-free income for 2025–26, bringing the total to £15,700.6GOV.UK. Blind Person’s Allowance – What You’ll Get If your income is too low to use all of it, you can transfer the unused portion to your spouse or civil partner.
Marriage Allowance
Marriage Allowance lets one spouse or civil partner transfer £1,260 of their Personal Allowance to the other, cutting the recipient’s tax bill by up to £252 a year. The giving partner must earn less than £12,570 (so isn’t using their full allowance), and the receiving partner must pay tax at the basic rate. Higher-rate and additional-rate taxpayers can’t receive it. The transferring partner’s allowance drops to £11,310 for the year.7GOV.UK. Marriage Allowance – How It Works
How the Allowance Reaches Your Paycheck
HMRC tells your employer your tax-free amount through a tax code. The standard 2025–26 code is 1257L: “1257” is your allowance with the last digit dropped, and “L” means you’re entitled to the standard Personal Allowance.8GOV.UK. Tax Codes – What Your Tax Code Means Your employer uses that code to spread the allowance evenly across each pay period under Pay As You Earn, so roughly £1,047 of each monthly paycheck runs tax-free.9GOV.UK. Understanding Your Employees’ Tax Codes – Overview
If you’re self-employed, the allowance works the same way but you apply it yourself through Self Assessment: report your total income, subtract the allowance, pay tax on what’s left.10GOV.UK. Self Assessment Tax Returns – Overview You’re generally required to file if your self-employed earnings exceed £1,000 before deductions.11GOV.UK. Self Assessment Tax Returns – Who Must Send a Tax Return
The US Equivalent: The Standard Deduction
The US tax code no longer uses the phrase “personal allowance,” but the standard deduction is the closest match. For tax year 2026 the amounts are:
- Single or married filing separately: $16,100
- Married filing jointly: $32,200
- Head of household: $24,150
These figures adjust each year for inflation, unlike the frozen UK allowance.2Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 If your itemizable deductions (mortgage interest, state taxes, charitable contributions and the like) add up to more than the standard deduction, you can itemize instead. Most filers take the standard deduction because it’s high enough that itemizing doesn’t pay off.
The US once had a separate “personal exemption” you could claim for yourself, your spouse, and each dependent. The Tax Cuts and Jobs Act of 2017 set that exemption to zero starting in 2018, and the One, Big, Beautiful Bill made the elimination permanent. For 2026 it stays at $0.2Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 The larger standard deduction was intended to compensate.
Extra Amounts for Seniors and Blind Filers
Taxpayers who are 65 or older or legally blind qualify for an additional standard deduction. If you qualify on both counts, you get the addition twice. For tax year 2025, the additional amount is $2,000 if you’re unmarried and not a surviving spouse, or $1,600 if married.12Internal Revenue Service. Topic No. 551 – Standard Deduction
The One, Big, Beautiful Bill also created a new enhanced deduction for seniors running from 2025 through 2028. People aged 65 or older can claim an extra $6,000, or $12,000 for a married couple where both spouses qualify. It stacks with the existing additional deduction.13Internal Revenue Service. Check Your Eligibility for the New Enhanced Deduction for Seniors A single 65-year-old filer in 2026 could combine the $16,100 base, the existing addition, and the $6,000 enhanced amount.
Why the Old W-4 “Allowances” Are Gone
If you’ve seen “personal allowances” in a US context, it usually traces back to the pre-2020 Form W-4, the form you gave your employer to set federal withholding. It asked you to claim a number of withholding allowances, each tied to the value of one personal exemption. More allowances meant less tax withheld.
The IRS redesigned the W-4 in 2020 and dropped allowances. The current form bases withholding on your filing status and standard deduction by default. Complete only Step 1 and your employer withholds as if the standard deduction is your only break. From there you can claim credits like the child tax credit in Step 3, account for deductions above the standard amount in Step 4(b), or request extra withholding in Step 4(c) if you have income without automatic withholding.14Internal Revenue Service. FAQs on the 2020 Form W-4
Self-employed workers don’t have an employer withholding tax and instead make quarterly estimated payments. If your net self-employment earnings reach $400 or more, you’re required to file a federal return regardless of your other income.15Internal Revenue Service. Topic No. 554 – Self-Employment Tax