UK tax-free allowances in 2026/27: every one explained

Everyone receives a Personal Allowance — the amount of income you can earn before paying Income Tax. For 2026/27, this is £12,570. It has been frozen since 2021 and is set to stay at this level until April 2031. For income above £100,000, the allowance reduces by £1 for every £2 over the threshold. At £125,140, no Personal Allowance remains. Pension contributions (including through salary sacrifice) and Gift Aid donations can bring your adjusted net income below £100,000 if you're near this cliff.

£20,000 per tax year. All growth, interest, and dividends inside an ISA are tax-free forever, not just for the year. The value of ISA allowances compounds dramatically over time — unused allowances can never be reclaimed. Use it every tax year. The Lifetime ISA has an additional £4,000 allowance (counted within the £20,000 limit) with a 25% government bonus.

Basic-rate taxpayers can earn £1,000 in savings interest tax-free. Higher-rate taxpayers get £500. Additional-rate taxpayers get nothing. If your savings interest exceeds your allowance, consider moving savings into a Cash ISA where all interest is tax-free regardless of amount.

The CGT annual exempt amount is £3,000 in 2026/27 (reduced from £12,300 in 2022/23 — a significant cut). Gains above this are taxed at 18% if they fall within your basic rate band and 24% above it. Since 30 October 2024 these rates apply to residential property and other assets alike. Use your allowance each year by crystallising gains — don't let it waste unused if you have an investment portfolio with unrealised gains.

The first £500 of dividend income is tax-free (it was £5,000 when introduced in 2016, then £2,000 until 2023). Above this, dividends are taxed at 10.75% (basic rate), 35.75% (higher rate) or 39.35% (additional rate) from April 2026. For company directors and freelancers with limited companies, holding dividends inside a pension or ISA is often more efficient than paying out to the personal tax band.

Two useful small allowances:

If your gross income from either is £1,000 or less, you do not need to tell HMRC. Rent a Room relief separately lets you earn up to £7,500 a year tax-free from a lodger in your home.