A fresh tax year starts today (April 6) and alongside it, numerous financial limits and thresholds will be refreshed or adjusted for 2026-2027.
A fresh tax year starts today (April
This means workers who exhausted their complete tax-free allowance for 2025-26 will be permitted to earn additional tax-free income for the upcoming tax year from Monday. The somewhat disappointing news is that, unlike state pensions, Universal Credit and numerous other benefits, the tax-free Personal Allowance will not rise from April 6. Beginning April 6, the tax-free Personal Allowance will be refreshed for the new tax year, though it will remain at £12,570 once again.
This represents precisely the same figure as last year, and indeed it has remained unchanged since 2021, when it was raised by £70. This means workers may only earn £12,570 tax-free within a single year, before they must begin paying Income Tax at 20% of their earnings on every £1 exceeding that limit, reports the Express . The Government said: "
The standard Personal Allowance is £12,570, which is the amount of income you do not have to pay tax on. "
Example: You had £35,000 of taxable income and you got the standard Personal Allowance of £12,570. You paid basic rate tax at 20% on £22,430 (£35,000 minus £12,570)." With most employers providing inflation-linked pay rises for the new tax year while the Personal Allowance remains frozen, it means workers will surrender 20% of their additional earnings to tax, as the threshold hasn't risen with inflation - effectively, it's a hidden tax hike, known as 'fiscal drag'.
Moreover, the thresholds will remain static until 2031, following Chancellor Rachel Reeves ' announcement extending the current freeze. Financial guru Martin Lewis broke down precisely how this operates during his live ITV1 programme in November. He explained: "
Let's start with by far the biggest tax rising measure that's gonna cost everyone, it's called fiscal drag. It's the freezing of your Income Tax and National Insurance rates. Now, I've ignored NI cos it complicates it. This is for employees and Scotland has different rates but it's really the principle I'm gonna talk about. "
You don't pay anything on the first £12,570 of your income, you pay 20% on everything you earn above that, not below that, the 40% higher rate starts at £50,270, then you've got this weird strange thing where you start to lose your tax-free Personal Allowance once you earn £100,000 so you've got an effective 60% tax rate, then once you get to £125,000 you're paying a top rate of tax, 45%. "
Fiscal drag means those thresholds are frozen. Now they were frozen until 2028, what the Chancellor has announced is that they're now frozen until 2031." For the latest breaking news and stories from across the globe from the Daily Star,
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