The personal allowance is the amount of income a person can earn each tax year before income tax applies. For 2026-27 it is 12,570 GBP (HMRC), frozen at that level, and it tapers away once income passes 100,000 GBP.
In one line: The personal allowance is the slice of yearly income that is taxed at 0% before income tax starts.
How the personal allowance works
The allowance is built into the PAYE tax code and spread across the year, so an employee receives a portion of it free of tax in each pay packet rather than all at once.
Take someone earning 30,000 GBP in 2026-27. The first 12,570 GBP (HMRC) is covered by the personal allowance, leaving 17,430 GBP taxable at the 20% basic rate, which is roughly 3,486 GBP of income tax for the year.
Income above 100,000 GBP reduces the allowance by 1 GBP for every 2 GBP earned, so it disappears entirely at 125,140 GBP, creating a high effective marginal rate in that band.
Personal allowance vs tax code
The personal allowance is a fixed entitlement set by HMRC. A tax code is the mechanism that delivers it through payroll, translating the allowance into a number used to calculate tax-free pay each period.
A standard 2026-27 code reflects the full 12,570 GBP allowance, but the code can be reduced for company benefits or untaxed income, meaning two people with the same allowance can have different codes.
Primary source: GOV.UK: Income Tax rates and Personal Allowances