Tax Allowances and Reliefs 2027: What You Can Earn Tax-Free in the UK
Tax allowances 2027 at a glance
The 2027/28 tax year starts on 6 April 2027, and most of the headline figures stay where they are. The Budget of 28 October 2026 kept the Personal Allowance at £12,570 and left every income tax band unchanged, with the freeze now running to 5 April 2031. Three things do move: the trading allowance triples to £3,000, tax on savings interest and rental income rises to 24%, 44% and 49%, and pensioners get a new Pension Tax Allowance.
Personal Allowance and income tax bands 2027/28
Personal Allowance: £12,570 – the first slice of income you pay no tax on.
Basic rate 20%: income from £12,571 to £50,270.
Higher rate 40%: £50,271 to £125,140.
Additional rate 45%: everything above £125,140.
Once your income passes £100,000, the allowance shrinks by £1 for every £2 above that line and is gone completely at £125,140. Between those two figures each extra pound is effectively taxed at 60%.
Scottish taxpayers get the same £12,570 Personal Allowance, but Scotland sets its own rates and bands for earned income. The 2027/28 Scottish figures are due in the Scottish Budget on 3 December 2026. The savings, dividend and capital gains rules in this article apply across the whole UK.
Trading allowance and other reliefs for the self-employed
The biggest change for anyone with side income is the trading allowance, which rises from £1,000 to £3,000 on 6 April 2027. Up to that amount, income from freelancing, casual work or selling is tax-free and does not have to be reported. The Self Assessment reporting threshold for trading income moves to £3,000 at the same time. Above £3,000 you choose: deduct the £3,000 allowance or deduct your actual business expenses, never both. The property allowance for rental income stays at £1,000.
You earn £2,800 in 2027/28 from weekend design work. The whole amount sits inside the new trading allowance: no tax and no tax return for that income. Earn £6,000 with £1,200 of expenses instead and you are better off claiming the £3,000 allowance – taxable profit of £3,000 rather than £4,800.
If your trading income is above the allowance, you still need to register for Self Assessment by 5 October after the end of the tax year in which the income started.
From 6 April 2027 Making Tax Digital for Income Tax also covers sole traders and landlords with gross self-employment and property income over £30,000. That means digital records and quarterly updates to HMRC through compatible software. Anyone joining in April 2027 gets no late-submission penalty points on their 2027/28 quarterly updates. Payment dates do not change – the 31 January and 31 July Self Assessment payment deadlines still apply.
Savings, dividends and capital gains
Personal Savings Allowance: £1,000 of interest for basic rate taxpayers, £500 for higher rate taxpayers, nothing at the additional rate.
Starting rate for savings: up to £5,000 of interest at 0% if your other income is below the Personal Allowance.
Dividend allowance: £500. Dividends above it are taxed at 10.75%, 35.75% and 39.35% – unchanged from 2026/27.
ISA allowance: £20,000. The planned cut of the cash ISA limit to £12,000 has been dropped, so the full £20,000 can go into cash.
Capital gains annual exempt amount: £3,000, with gains above it taxed at 18% or 24%.
Interest above your Personal Savings Allowance and rental profit above the property allowance are taxed at the new savings and property rates from 6 April 2027: 24%, 44% and 49%. That is four points above the main income tax rates. A basic rate taxpayer with £3,000 of interest pays £480 instead of £400.
Disposals of crypto, shares and other assets share the same £3,000 exempt amount. Our guide to crypto tax in 2027 explains how HMRC will see those gains directly from exchanges.
Allowances for couples, pensioners and people with a disability
Marriage Allowance: £1,260. A non-taxpayer or low earner can transfer this slice of their Personal Allowance to a spouse or civil partner who pays basic rate tax, cutting that partner’s bill by up to £252.
Blind Person’s Allowance: £3,370, up from £3,250. It is added on top of the Personal Allowance and can be transferred to a spouse or civil partner if you cannot use it.
Pension Tax Allowance – new from 6 April 2027. The full new State Pension is now above the Personal Allowance, so pensioners whose total income is up to £13,037 get an extra allowance worth up to £467 and pay no income tax. It tapers by £1 for every £3 of income above £13,037 and disappears at £13,319. Our article on pensions in the UK in 2027 covers the State Pension rise behind it.
Pension annual allowance: £60,000 of contributions a year with tax relief.
FAQ:
1. What is the Personal Allowance for 2027/28?
£12,570, the same as in 2026/27. It is frozen at this level until 5 April 2031 and is withdrawn by £1 for every £2 of income above £100,000.
2. How much can I earn from a side hustle tax-free in 2027?
Up to £3,000 of gross trading income from 6 April 2027, with no need to report it. Until 5 April 2027 the limit is still £1,000.
3. Is the Marriage Allowance going up in 2027?
No. It stays at £1,260 because it is 10% of the frozen Personal Allowance. The maximum saving remains £252 a year.
4. What is the Pension Tax Allowance?
A new allowance for people at or above State Pension age with total income up to £13,037, worth up to £467 a year. It is reduced by £1 for every £3 of income above that level and ends at £13,319. It applies from 2027/28 to 2029/30.
5. Do the savings allowances change in 2027/28?
The allowances do not – £1,000 for basic rate and £500 for higher rate taxpayers – but interest above them is taxed at 24%, 44% or 49% instead of 20%, 40% or 45%.
Conclusion:
The 2027/28 allowances look like the year before – the same £12,570 Personal Allowance and the same bands, so a pay rise pushes more of your income into tax. The real changes sit at the edges. Side earners get £3,000 tax-free instead of £1,000, savers and landlords pay four points more on income above their allowances, and pensioners living on the State Pension alone stay out of tax thanks to the new Pension Tax Allowance. Check which of these applies to you before 6 April 2027 and, if you cross the £30,000 line, get your records ready for Making Tax Digital.
