The UK tax system contains numerous allowances that allow you to receive income, generate investment returns, or make gains completely tax-free. Most people know about the income tax personal allowance, but fewer take full advantage of the ISA allowance, savings interest allowance, dividend allowance, and capital gains tax annual exempt amount. Using all of these effectively can save hundreds or thousands of pounds per year.
Personal Allowance 2026/27
The personal allowance is the amount of income you can earn before paying income tax. For 2026/27, it remains frozen at £12,570. This applies to employment income, self-employment income, rental income, and pension income. If your income exceeds £100,000, your personal allowance reduces by £1 for every £2 over, meaning at £125,140 you lose the full allowance. You can restore your personal allowance by increasing pension contributions to bring adjusted net income below £100,000.
- Personal allowance 2026/27: £12,570
- Frozen until April 2031 under current plans
- Reduced by £1 for every £2 above £100,000
- Fully removed at £125,140 of adjusted net income
- Pension contributions reduce adjusted net income and can restore the allowance
ISA Allowance 2026/27
The ISA allowance is £20,000 per person per tax year. Money invested in an ISA grows tax-free and can be withdrawn tax-free at any time (except Lifetime ISA, which has withdrawal restrictions). You can split your allowance across different ISA types: cash, stocks and shares, Lifetime ISA (maximum £4,000), and Innovative Finance ISA. Couples can shelter £40,000 per year between them. This is one of the most powerful tax-free vehicles available. From 6 April 2027, under-65s can put at most £12,000 a year of their £20,000 into Cash ISAs.
- Annual ISA allowance: £20,000 per person
- Split across: cash ISA + stocks and shares ISA + LISA (max £4,000) + IFISA
- All returns (interest, dividends, capital gains) are completely tax-free
- Couples: £40,000/year combined
- Use it or lose it: allowance doesn't roll over to next year
Personal Savings Allowance
The Personal Savings Allowance (PSA) lets you earn interest on savings outside of an ISA before paying tax. Basic rate taxpayers (20%) can earn £1,000 of interest tax-free. Higher rate taxpayers (40%) get £500. Additional rate taxpayers (45%) get no PSA. At 4% interest, a basic rate taxpayer can hold about £25,000 in savings before breaching the PSA (£12,500 for a higher rate taxpayer). Amounts above the PSA are taxed at your marginal rate, which for savings income rises by 2 percentage points (to 22%, 42% or 47%) from 6 April 2027.
- Basic rate taxpayer: £1,000 interest tax-free
- Higher rate taxpayer: £500 interest tax-free
- Additional rate taxpayer: no allowance (all interest taxed)
- At 4% interest: a basic rate taxpayer reaches the £1,000 PSA with about £25,000 saved
- See our savings interest allowance guide for full details
Dividend Allowance and Capital Gains
The dividend allowance was reduced to £500 per year from 2024/25 onwards (down from £2,000 in 2022/23 and £1,000 in 2023/24). Above this, dividends are taxed at 10.75% (basic rate), 35.75% (higher rate) or 39.35% (additional rate) from 6 April 2026. The capital gains tax annual exempt amount was reduced to £3,000 from 2024/25. Since 30 October 2024, gains above this on investments and residential property outside an ISA are taxed at 18% (basic rate) or 24% (higher and additional rate).
- Dividend allowance: £500/year tax-free
- Above £500: 10.75% (basic), 35.75% (higher), 39.35% (additional)
- Capital gains annual exempt amount: £3,000
- CGT on investments and property: 18% basic / 24% higher
- Use ISA to shelter investments from dividend tax and CGT
Other Key Allowances
Several other tax-free allowances are worth knowing. The Trading Allowance gives self-employed individuals and those selling online up to £1,000/year tax-free. The Property Allowance gives landlords and property income earners up to £1,000/year tax-free. The Marriage Allowance allows eligible lower-earning spouses to transfer £1,260 of their unused personal allowance to their partner, as long as the partner is a basic rate taxpayer (saving up to £252/year). The Rent-a-Room Scheme allows you to earn up to £7,500/year tax-free from renting a room in your home.
- Trading allowance: £1,000/year from self-employment/gig economy
- Property allowance: £1,000/year from property income
- Marriage allowance: transfer up to £1,260 to higher-earning partner (saves £252/year)
- Rent-a-room scheme: £7,500/year tax-free from lodger
- Most of these stack, so you can benefit from several at once
Do tax-free allowances reset each tax year?
Yes. Personal allowance, ISA allowance, PSA, dividend allowance and CGT annual exempt amount all reset on 6 April each year. Unused amounts are lost (a flexible ISA only lets you replace withdrawals within the same tax year).
Can I use all the allowances simultaneously?
Yes. You can simultaneously benefit from the personal allowance, PSA, ISA allowance, dividend allowance, trading allowance, property allowance and Marriage Allowance where you qualify. A few cannot be combined on the same income: for example, you cannot claim both Rent a Room relief and the property allowance on the same letting income.
- tax free allowances
- personal allowance
- isa
- uk tax 2026