UK Tax-Free Allowances in 2026/27: The Complete Guide

Everyone receives a Personal Allowance — the amount of income you can earn before paying Income Tax. For 2026/27, this is £12,570 (frozen since 2021, with no uplift announced). For income above £100,000, the allowance reduces by £1 for every £2 over the threshold. At £125,140, no Personal Allowance remains. Use salary sacrifice (pension contributions, childcare vouchers) to bring 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% (basic rate) or 24% (higher rate) on residential property, and 10% or 20% on other assets. 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 (reduced from £5,000 before 2023). Above this, dividends are taxed at 8.75% (basic rate), 33.75% (higher rate), or 39.35% (additional rate). 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: - Trading Allowance: £1,000/year of self-employment income tax-free (side hustles, casual work) - Property Allowance: £1,000/year of rental income tax-free (useful for small Airbnb income) Neither requires registration if income stays below the threshold.