What Is the Current Tax-Free Allowance in the UK for 2025?

As the 2025-2026 UK tax year begins on April 6th, 2025, taxpayers need to be aware of the various tax-free allowances available. These allowances can significantly reduce the amount of income or gains on which you pay tax. Here's a breakdown of the key tax-free allowances for the upcoming tax year.

You qualify for UK tax-free allowances in 2025 if you:

- Earn under the Personal Allowance threshold (£12,570)

- Receive dividends or savings interest

- Are married and eligible to transfer allowances

- Are registered blind or severely sight-impaired

- Have small self-employment or rental income

- Made capital gains below £3,000

Personal Allowance

The Personal Allowance refers to the portion of income that individuals can earn without becoming liable to pay Income Tax. For the 2025-2026 tax year, the standard Personal Allowance remains unchanged at £12,570. The allowance has remained constant since April 2022 and is expected to remain unchanged until April 2028.

It's important to note that your Personal Allowance decreases if your income exceeds £100,000. For every £2 earned above £100,000, £1 is subtracted from the tax-free Personal Allowance. The Personal Allowance is completely withdrawn once your income reaches £125,140, meaning you pay tax on all income above this threshold.

Dividend Allowance

The dividend allowance for the 2025-2026 tax year is set at £500. This means that the first £500 of dividend income you receive is tax-free. Individuals receiving dividends above this threshold will face tax liabilities at rates such as 8.75% (basic rate), 33.75% (higher rate), and 39.35% (additional rate). This allowance aims to mitigate an element of double taxation, as companies pay dividends from profits that have already been taxed. Dividends from shares held within an Individual Savings Account (ISA) are exempt from tax and therefore this allowance does not apply.

Personal Allowance (PSA) and Starting Rate for Savings

For the 2025-2026 tax year, the Personal Savings Allowance (PSA) allows basic rate taxpayers to earn up to £1,000 in savings interest tax-free, while higher rate taxpayers can earn up to £500 tax-free. Taxpayers in the additional rate category are not eligible for a PSA.

Additionally, there is a starting rate for savings which allows individuals with low non-savings income (less than £5,000) to earn up to £5,000 in savings interest tax-free. The 0% rate applies if your total taxable non-savings income is below your Personal Allowance (£12,570) and your combined income (non-savings and savings) doesn’t exceed £17,570. The starting rate for savings is reduced by £1 for every £1 your other income (like earnings) exceeds the personal allowance.

Marriage Allowance (Transferable Tax Allowance)

The Marriage Allowance enables eligible spouses or civil partners to transfer a portion of their unused Personal Allowance to their partner, providing a potential tax benefit. For the 2025-2026 tax year, up to £1,260 can be transferred. To be eligible, the transferring partner must have an income of £12,570 or less, and the receiving partner must be a basic-rate taxpayer. This transfer results in a tax bill deduction for the recipient, equivalent to 20% of the transferred amount, which can be up to £252. Claims for Marriage Allowance can be backdated for up to four previous tax years.

Married Couple's Allowance

Separate from the Marriage Allowance, the Married Couple's Allowance is available to couples where at least one partner was born before 6th April 1935. For the 2025-2026 tax year, this allowance is £11,270, with tax relief restricted to 10% of this amount, equating to a maximum tax reduction of £1,127. The allowance gradually reduces for taxpayers earning above an income limit of £37,700. There is a minimum Married Couple's Allowance of £4,360 for 2025-2026.

Blind Person's Allowance

An additional tax-free amount is provided through the Blind Person's Allowance. For the 2025-2026 tax year, this allowance is £3,130. It is available to individuals who are registered blind or severely sight impaired. If you and your spouse or civil partner are both eligible, each can claim this allowance. If you don't use all of your allowance, it can be transferred to your spouse or civil partner.

Trading Allowance and Property Allowance

Individuals with small amounts of income from self-employment or property can benefit from the trading allowance and property allowance. Both are set at £1,000 for 2025-2026, allowing you to earn this amount tax-free from self-employment or rental income, respectively. However, if you claim one of these allowances, you cannot claim any expenses against that particular income. These allowances are not applicable if the income is from a private limited company.

Capital Gains Tax (CGT) Annual Exempt Amount

The Annual Exempt Amount (AEA) for Capital Gains Tax (CGT) for individuals is £3,000 for the 2025-2026 tax year. This means that any capital gains up to this amount are tax-free. The AEA was significantly reduced in recent years, reaching its current level from April 2024. For trusts, the AEA is £1,500.

Understanding these tax-free allowances for the 2025-2026 tax year is crucial for effective financial planning and ensuring compliance with UK tax laws.

FAQs:

1. What is the personal tax-free allowance in the UK for 2025?

Answer: For the 2025–2026 tax year, the standard personal allowance remains at £12,570. This means individuals can earn up to this amount before paying income tax. If your income exceeds £100,000, the allowance tapers off and is completely removed at £125,140.

2. How does the dividend tax-free allowance work in 2025?

Answer: In 2025–2026, the dividend allowance is set at £500. If you receive dividends exceeding this amount, you may be taxed at rates starting from 8.75%. Dividends within ISAs remain tax-free and don’t count toward this threshold.

3. What is the savings interest allowance for 2025?

Answer: Basic rate taxpayers can earn £1,000 in savings interest tax-free under the Personal Savings Allowance (PSA). Higher-rate taxpayers have a £500 PSA, while additional-rate taxpayers are not eligible. A separate starting rate for savings may apply if your income is low.

4. Can I claim the marriage allowance in 2025?

Answer: Yes. Eligible couples can transfer up to £1,260 of unused Personal Allowance between spouses or civil partners. This can save the recipient up to £252 in tax. The transferring partner must earn under £12,570.

5. Are there extra allowances for people with disabilities?

Answer: Yes. The Blind Person’s Allowance provides an additional £3,130 tax-free in 2025–2026. It’s available to individuals registered blind or severely sight-impaired. Unused portions can be transferred to a spouse or partner.