HMRC tax-free personal allowance increase is one of the biggest talking points in the United Kingdom right now. After years of frozen tax thresholds, the government has confirmed plans to raise the allowance from £12,570 to £13,570. This move has caught attention because it directly affects take home pay for millions of workers and pensioners. With living costs still high in February 2026, even a small tax saving matters.
The HMRC tax-free personal allowance increase is not just about adding £1,000 to the threshold. It also comes with a new side rule that changes how the allowance is applied for people with more than one income source. In this guide, you will understand what the change means, who benefits most, how much you could save, and what steps you should take before the new tax year begins.
HMRC tax-free personal allowance increase
The HMRC tax-free personal allowance increase is designed to ease pressure on low and middle income earners while keeping public finances stable. For several years, the allowance remained at £12,570, even as wages slowly increased due to inflation and pay adjustments. This created what experts call fiscal drag, where more people end up paying tax without feeling financially better off. By lifting the threshold to £13,570, the government aims to protect an extra £1,000 of income from tax. However, the update also introduces tighter controls on how the allowance is shared between jobs or pensions. This means taxpayers must pay closer attention to their tax codes in 2026 to ensure the correct amount of tax is deducted throughout the year.
Overview of the Proposed Changes
| Key Point | Details |
| Current Personal Allowance | £12,570 |
| Proposed New Allowance | £13,570 |
| Increase Amount | £1,000 |
| Estimated Annual Saving | Around £200 for basic rate taxpayers |
| Policy Status | Announced February 2026 |
| Likely Start Date | April 2026 tax year |
| Main Beneficiaries | Low and middle income earners |
| Impact on Pensioners | Possible lower tax bills |
| New Side Rule | Stricter allocation across income sources |
| Administration Body | HM Revenue & Customs |
What the Personal Allowance actually is
The Personal Allowance is the amount of money you can earn in a tax year before paying Income Tax. If your income goes above this threshold, you pay tax on the portion above it according to your tax band.
For employees, the allowance is usually applied automatically through PAYE. Self-employed individuals claim it when filing a Self Assessment tax return. Pensioners also receive the allowance, but tax is often collected through private pensions if the State Pension pushes income above the limit.
With the HMRC tax-free personal allowance increase, more of your salary or pension will be protected from tax. That means slightly higher take home pay for many people across the country.
Why HMRC is considering a £13,570 allowance
One major reason behind the HMRC tax-free personal allowance increase is the effect of frozen thresholds. Since the allowance stayed at £12,570 for years, rising wages have slowly pushed more people into paying Income Tax. This has especially affected part-time workers and pensioners.
The government wants to respond to cost of living pressures without cutting overall tax rates. By lifting the tax-free threshold, support can be targeted at those who need it most.
Economic data from early 2026 shows household budgets remain tight due to food, energy, and housing costs. Increasing the allowance is seen as a measured step to provide relief while maintaining financial stability.
How much tax you could save
The big question is how much you will actually gain from the HMRC tax-free personal allowance increase.
If you pay the basic rate of 20 percent, an extra £1,000 tax-free means around £200 saved per year. That works out to roughly £16 to £17 per month.
For some households, that amount may cover utility bills for a week or help with weekly shopping. Higher rate taxpayers may see little benefit because their allowance reduces once income exceeds certain levels.
While it is not a dramatic change, it does offer meaningful support during a time when many families are budgeting carefully.
Who benefits the most from the change
The groups likely to benefit most include:
- Workers earning slightly above £12,570
- Part-time employees balancing family responsibilities
- Pensioners receiving both State Pension and private pension income
- Self-employed individuals with modest annual profits
Those earning below the current allowance already pay no Income Tax. However, the increase may stop them from entering the tax system if their income rises slightly in the coming year.
The HMRC tax-free personal allowance increase mainly supports people on lower and middle incomes rather than high earners.
The new side rule explained in simple terms
The new side rule focuses on how the allowance is divided when someone has more than one income source.
This includes people who:
- Work two jobs
- Receive multiple pensions
- Combine employment with freelance work
- Have casual or seasonal employment
In the past, tax code mistakes sometimes allowed the allowance to be applied twice. That led to underpaid tax and unexpected bills later. Under the new system, HMRC will apply stricter controls to prevent duplication.
The allowance remains £13,570 in total, but it must be correctly assigned to one main income source.
Why HMRC wants this side rule
HMRC deals with thousands of tax code errors each year. Many happen because income details are not updated quickly or because someone starts a second job.
The side rule linked to the HMRC tax-free personal allowance increase aims to reduce confusion and improve accuracy. When tax is collected correctly throughout the year, there is less risk of sudden repayment demands.
The goal is better administration and fairness across the tax system, not higher taxation.
How pensioners could be affected
Pensioners are among those most affected by the allowance change. The State Pension is paid without tax being deducted at source. If total income exceeds the allowance, tax is usually collected from private pensions.
With the threshold rising to £13,570, some pensioners may no longer owe Income Tax. Others may see smaller deductions from their monthly pension payments.
However, pensioners with more than one pension must ensure their tax code reflects the new structure under the updated rules.
Impact on PAYE workers
Employees paid through PAYE will likely see the HMRC tax-free personal allowance increase applied automatically once it becomes law.
Those with second jobs or flexible contracts should review their tax codes carefully. The full allowance will normally be assigned to one main job, while other jobs may have tax deducted at the basic rate.
Checking payslips in April 2026 will help confirm everything is correct.
What it means for self-employed and side income
Self-employed workers benefit because their taxable profit reduces when the allowance increases.
If your annual profit is close to the current threshold, the HMRC tax-free personal allowance increase could lower your overall tax bill.
However, if you combine freelance work with employment, you must ensure the allowance is not incorrectly applied twice. Keeping accurate financial records and updating income details with HMRC is essential.
When the change might happen
As of February 2026, the proposal has been announced but still requires final legislative approval. If passed, the new £13,570 allowance is expected to begin in April 2026 at the start of the next tax year.
Until then, the current £12,570 threshold remains in place. Taxpayers should stay informed through official updates and review their tax codes once the change takes effect.
What UK taxpayers should do now
There is no need for urgent action, but preparation is wise.
Review your latest tax code notice.
Check that all income sources are correctly recorded.
Update HMRC if you start or leave a job.
Monitor announcements ahead of the April 2026 tax year.
Staying proactive ensures you fully benefit from the HMRC tax-free personal allowance increase without facing surprises.
FAQs
1. When will the new allowance start?
It is expected to begin in April 2026 if approved by Parliament.
2. How much can I save each year?
Basic rate taxpayers may save around £200 annually.
3. Will everyone benefit from the increase?
Most low and middle income earners will benefit. High earners may see limited or no change.
4. What is the purpose of the new side rule?
It prevents the tax-free allowance from being applied more than once across multiple incomes.
5. Do I need to apply for the new allowance?
No. It should be applied automatically through your tax code, but checking your details is recommended.