UK finance jargon - in plain English
The amount you can earn each year before paying any income tax.
The Personal Allowance is the portion of your income that is completely free from income tax. For 2026/27 it stands at £12,570. This applies to most people in employment, self-employment, or receiving a pension. Your tax code (usually shown on your payslip or a letter from HMRC) reflects your allowance. If your adjusted net income goes above £100,000, the allowance starts to reduce by £1 for every £2 earned above that level, and it disappears entirely once income reaches £125,140.
You earn £25,000. Only £12,430 of that is taxable (£25,000 minus the £12,570 allowance). At the 20% basic rate, your income tax is around £2,486 for the year. Without the Personal Allowance, you would pay tax on the full £25,000.
The Personal Allowance is set by the government and can change each tax year. Check the current figure at gov.uk before making financial plans.
Last updated: June 2026. Sources: HMRC / GOV.UK / Student Finance England / FCA where relevant.
People assume the allowance always applies. If you have multiple sources of income, or earn above £100,000, your allowance may be reduced or split. A tax code that doesn't look like the standard one is worth checking with HMRC.