The main UK tax free allowance is £12,570 and frozen until 2028. Plus the dividend, savings, trading and property allowances you can stack on top in 2026/27.
Most people know one number: £12,570. It is the tax free allowance that shows up as 1257L on a payslip and it is the biggest single reason your take-home is what it is.
What far fewer people realise is that it is not the only one. There are at least five other allowances sitting alongside it in 2026/27, each with its own rules, and they stack. A warehouse worker with a small side hustle and a bit of savings interest can be several thousand pounds better off simply by knowing which pot each bit of income lands in.
An allowance is a slice of a particular type of income that carries no tax. The critical word is type. The personal allowance covers earnings. The savings allowance covers interest. The dividend allowance covers dividends. They are not interchangeable, and unused space in one does not transfer into another.
That is the mistake I see most often. Someone earns £30,000, assumes they have “used up” their tax free space, and pays tax on £600 of dividends they did not need to declare.
The personal allowance is £12,570 for 2026/27, frozen since April 2021 and scheduled to stay put until April 2028. It covers wages, salary, pension income and self employed profits.
Applied monthly that is £1,047.50 of protected pay, or £241.73 a week. Above it you pay 20 per cent to £50,270, then 40 per cent to £125,140, then 45 per cent. Between £100,000 and £125,140 the allowance itself tapers away at £1 for every £2, which is what creates the 60 per cent marginal band. The bands are published on gov.uk.
Married couples and civil partners get a sixth option here. If one of you earns under £12,570 and the other is a basic rate taxpayer, Marriage Allowance transfers £1,260 of unused allowance and saves the household £252 a year.
Here is the part the payslip never tells you about.
Interest on ordinary savings accounts is tax free up to:
Your band is worked out on your total income, so a pay rise that tips you over £50,270 halves this allowance in the same stroke. The rules are on gov.uk.
There is also a separate starting rate for savings worth up to £5,000. It only helps people with low earned income, because every pound of non savings income above the personal allowance reduces it by a pound. If you earn more than £17,570 in wages, it is gone. If you took a career break, went part time, or are living off savings for a year, it is worth checking.
The first £500 of dividend income is tax free in 2026/27. Above that, dividends are taxed at their own rates rather than the normal income tax rates. See gov.uk on dividends.
This one has been shrinking fast, from £5,000 a few years ago down to £500 today, which matters a lot to company directors paying themselves partly in dividends.
The first £1,000 of casual self employed income is tax free, and if that is all you make you do not need to register for Self Assessment at all. Selling on Vinted, a few weekend photography jobs, tutoring, a market stall.
Two details that catch people. It applies to gross income, not profit, so £1,000 of sales with £400 of costs still counts as £1,000. And you cannot claim the allowance and your expenses, you pick whichever is worth more.
A separate £1,000 for property income, most commonly a rented parking space, a lock up, or occasional room lettings. It works the same way as the trading allowance and does not compete with it. Both are covered in the same gov.uk guidance.
£3,000 of gains a year before Capital Gains Tax applies, down from £12,300 three years ago. Relevant if you sell shares, crypto, or a second property. Details on gov.uk.
Worth noting alongside it: an ISA is not an allowance, it is a wrapper. You can put £20,000 a year in, and interest, dividends and gains inside it are outside all of the above.
Sam works in a distribution centre in Doncaster on £22,000, sells prints on Etsy, keeps a small emergency fund, and holds a few shares from an old employee scheme.
| Income | Amount | Which allowance | Tax |
|---|---|---|---|
| Warehouse salary | £22,000 | Personal allowance £12,570 | 20 per cent on £9,430 = £1,886 |
| Etsy sales | £900 | Trading allowance £1,000 | £0 |
| Savings interest | £120 | Personal savings allowance £1,000 | £0 |
| Dividends | £400 | Dividend allowance £500 | £0 |
Sam pays £1,886 in income tax and nothing at all on the other £1,420 of income. No Self Assessment return, no registration, nothing to file.
Change one number and it shifts. If the Etsy sales hit £1,400, Sam has to register for Self Assessment, and the choice becomes claiming the £1,000 trading allowance against £1,400 of income, or deducting actual costs instead if they come to more than £1,000.
Four checks, and none of them take long.
1257L is the full £12,570. Anything lower means HMRC is deducting something, and your Personal Tax Account itemises exactly what.Here is what I would do first if you have never audited this: write down every source of income you had last year, including the small ones, and put each next to the allowance that covers it. Most people find at least one pot they never used.
The £12,570 figure has not moved since April 2021, and the £50,270 higher rate threshold is frozen alongside it until April 2028.
That is a quiet tax rise. Someone who was earning £46,000 in 2021 and has had modest annual rises since is now brushing the higher rate band, paying 40 per cent on the top slice, and has had their personal savings allowance cut from £1,000 to £500 in the process. Nothing in that changed because a rate went up.
The practical response is the same one that works at £100,000: pension contributions reduce the income that counts, and salary sacrifice reduces National Insurance as well. If a pay rise is about to push you over £50,270, sacrificing part of it into the pension can leave you better off than taking it.
If you want to see how much of your pay the £12,570 is actually protecting each month, the NetPay app works it out from your real hours, including National Insurance, pension and student loan. Free to download.
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£12,570 from employment or self employment, through the personal allowance. On top of that you can usually have £1,000 of savings interest as a basic rate taxpayer, £500 of dividends, £1,000 of casual trading income and £1,000 of property income, all tax free and all separate from each other.
No, and they stack. The trading allowance covers the first £1,000 of casual self employed or side hustle income and sits entirely on top of your £12,570 personal allowance. It applies to gross income rather than profit, so £1,000 of sales with £400 of costs still counts as £1,000 for this test.
The personal allowance was frozen at £12,570 from April 2021 as a revenue raising measure, and successive Budgets have extended the freeze to April 2028. Because wages rise while the threshold does not, more income falls into tax each year. Economists call this fiscal drag, and it raises money without any headline rate going up.
Usually not. Banks report interest to HMRC automatically, and if you are within your personal savings allowance there is no tax to pay. Where it matters is if the interest pushes you over the allowance, because HMRC then normally collects the tax by reducing your tax code the following year rather than sending a bill.
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A note on financial advice: NetPay UK calculates take-home pay based on official HMRC tax rules. This article reflects rules in force at the time of publication (29 August 2026). Tax rules change. For complex situations, consult a qualified UK accountant or visit gov.uk/income-tax.
