Now we’re into the new tax year, it’s a good time to take stock of the allowances available to you. Knowing what you can earn, save and invest tax-free helps you make the most of your money, and avoid any nasty surprises come tax time.

Here’s a straightforward summary of the key UK tax allowances for 2026/27.

What is a tax allowance?

A tax allowance is an amount of income or gains you can receive without paying tax on it. Making full use of your tax allowances each year is one of the simplest ways to keep more of your hard-earned money.

Let’s look at the main tax allowances you need to know about.

Personal Allowance: the most important tax allowance

The Personal Allowance remains at £12,570. This is the most fundamental tax allowance, it’s the amount you can earn before you start paying income tax.

If you’re married or in a civil partnership and one of you earns less than the Personal Allowance, you might be able to transfer some of it to the higher earner through the Marriage Allowance. It’s not a huge amount, but it’s free money if you qualify, so worth checking.

There’s also a Blind Person’s Allowance for those who are eligible, which gives you a bit extra on top of the standard tax allowance.

Income tax rates and bands

Once you’ve used up your Personal Allowance, here’s how income tax works in England, Wales and Northern Ireland:

  • Basic rate (20%) – on income from £12,571 to £50,270
  • Higher rate (40%) – on income from £50,271 to £125,140
  • Additional rate (45%) – on income above £125,140

If you live in Scotland, the rates and bands are different, there are more of them and they work slightly differently. If that applies to you, it’s worth looking into the specifics or having a chat with us.

Savings and investment tax allowances

There are some really useful tax allowances here that can help you grow your wealth tax-efficiently.

ISA allowance

The ISA allowance stays at £20,000 per person. This tax allowance lets you save or invest up to £20,000 each year completely free from income tax and Capital Gains Tax. You can split this across different types of ISA – Cash, Stocks and Shares, Innovative Finance or Lifetime ISAs, however you like.

One change to be aware of: if you’re under 65, there’s now a £12,000 cap on how much you can put into a Cash ISA within your overall £20,000 limit. So if you want to save more than that in ISAs, you’ll need to look at Stocks and Shares or other options.

Dividend allowance

The Dividend Allowance is £500. This tax allowance means you can receive up to £500 in dividends without paying any tax. Any dividends above this will be taxed depending on your income tax band.

Trading and property allowances

If you earn a small amount from a side hustle or renting out property, there’s good news. You get a £1,000 trading allowance and a £1,000 property allowance. If your income from these sources is below these tax allowance thresholds, you don’t need to report it or pay tax on it.

Capital Gains Tax allowance

The annual CGT allowance (also called the annual exempt amount) is now just £3,000. This tax allowance is the amount of profit you can make from selling assets, like shares or a second property, before you pay Capital Gains Tax.

This allowance has come down significantly in recent years, so if you’re sitting on investments with gains, it’s worth thinking about whether to use your tax allowance each year rather than letting gains build up.

Pension tax allowances

Pensions remain one of the most tax-efficient ways to save for the future, thanks to generous tax allowances.

  • Annual Allowance: £60,000 — this tax allowance is how much you (and your employer) can contribute to your pension each year and still get tax relief. If you’re a very high earner, this may be reduced through tapering.
  • Money Purchase Annual Allowance: £10,000 — this lower tax allowance applies if you’ve already started taking money flexibly from a defined contribution pension.
  • Lump Sum Allowance: £268,275 — this is the maximum you can take as a tax-free lump sum from your pension over your lifetime.

Why frozen tax allowances matter

Here’s something important to keep in mind. These income tax thresholds and many tax allowances have been frozen for several years now, and they’re staying frozen.

What does that mean in practice? As wages rise with inflation, more people get pushed into higher tax bands even though their spending power hasn’t really increased. It’s sometimes called “fiscal drag” or a stealth tax.

If you’ve had a pay rise recently, it’s worth checking whether you’ve crept into a higher band, and whether there’s anything you can do about it, like increasing pension contributions to make use of your pension tax allowances.

Make the most of your tax allowances

Tax allowances might seem like dry stuff, but using them wisely can make a real difference to your finances over time. Whether it’s making the most of your ISA allowance, using your pension tax allowances or planning around Capital Gains Tax, a bit of forward thinking goes a long way.

The key is to review your tax allowances each year and make sure you’re not leaving money on the table. Many tax allowances can’t be carried forward, so if you don’t use them, you lose them.

How can we help?

If you’d like to talk through how any of these tax allowances apply to your situation, we’re always happy to help. Just get in touch.

Celtic Financial Planning — Chartered Financial Planners helping you make the most of your money.

 

We are not tax advisers and tax planning is not regulated by the Financial Conduct Authority.