UK Personal Allowance — Calculate Your Tax-Free Amount
Calculate your Personal Allowance for the 2026-27 tax year. Understand how it reduces above £100000 income and disappears at £125140.
The UK Personal Allowance is £12570 of tax-free income for 2026-27. However it reduces by £1 for every £2 of income above £100000 creating an effective 60% tax rate between £100000-£125140. At £125140 the allowance is completely gone. This cliff creates one of the most punishing tax rates in the UK system and requires careful planning for high earners.
How does the £100000 trap work?
Between £100000-£125140 you lose £1 of Personal Allowance for every £2 earned. On £2 extra income: you pay 40% tax on £2 (£0.80) plus lose £1 of allowance meaning £1 of previously tax-free income is now taxed at 40% (£0.40). Total tax on £2: £1.20 = 60% rate. This is higher than the 45% additional rate.
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How Tax Calculation Works
Income tax is calculated on your total taxable income after deducting eligible exemptions and deductions from your gross income. The tax is applied progressively — you pay a lower rate on initial income slabs and higher rates only on income that exceeds each threshold. This means moving into a "higher tax bracket" does not mean your entire income is taxed at the higher rate. Understanding marginal vs effective tax rate is crucial: your marginal rate applies only to the last rupee earned, while your effective rate is the average across all slabs.
Tax-Saving Strategies
Under the old regime, maximize deductions: Section 80C allows up to Rs 1.5 lakh through PPF, ELSS, EPF, and life insurance. Section 80D covers health insurance premiums up to Rs 25,000 (Rs 50,000 for senior citizens). Section 80CCD(1B) offers an additional Rs 50,000 deduction for NPS contributions. Home loan interest up to Rs 2 lakh is deductible under Section 24. Under the new regime, the Rs 75,000 standard deduction and lower slab rates may save you more if your total deductions are below Rs 3.75 lakh. Calculate under both regimes before choosing.
Key Information
| Parameter | Details |
|---|---|
| Personal Allowance (2026-27) | £12570 |
| Reduction Threshold | £100000 income |
| Effective Rate (£100K-£125K) | 60% marginal |
| Allowance Eliminated At | £125140 |
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Use Calculator NowFrequently Asked Questions
How does the £100000 trap work?
Between £100000-£125140 you lose £1 of Personal Allowance for every £2 earned. On £2 extra income: you pay 40% tax on £2 (£0.80) plus lose £1 of allowance meaning £1 of previously tax-free income is now taxed at 40% (£0.40). Total tax on £2: £1.20 = 60% rate. This is higher than the 45% additional rate.
How to avoid the Personal Allowance trap?
Contribute to pension to bring income below £100000. A £5000 pension contribution at £105000 income saves £2000 in tax from the allowance restoration plus the normal 40% relief. Salary sacrifice into pension is especially effective. Charitable donations via Gift Aid also reduce adjusted net income.
Does everyone get £12570 Personal Allowance?
Most UK residents get the full £12570. Exceptions: income above £100000 (tapered). Non-residents may get reduced or no allowance depending on nationality. Some older people have slightly higher allowances from legacy rules. The allowance has been frozen at £12570 since 2021-22 meaning fiscal drag pulls more people into higher tax brackets each year.
What are the UK income tax bands for 2025-26?
Personal Allowance: £0-£12,570 (0%). Basic rate: £12,571-£50,270 (20%). Higher rate: £50,271-£125,140 (40%). Additional rate: over £125,140 (45%). The personal allowance reduces by £1 for every £2 earned over £100,000, creating an effective 60% rate between £100,000-£125,140.
What is the £100,000 tax trap?
When your income exceeds £100,000, you lose £1 of personal allowance for every £2 over. This creates a hidden 60% effective tax rate between £100,000-£125,140. Pension contributions are the most effective way to bring your income below this threshold and reclaim the allowance.
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Last updated: March 2026