Will the Government Ever Raise the Personal Allowance?

Tax Queen

Tax Expert @ Pie

3 min read

The tax-free threshold has been stuck at £12,570 since 2021. Over 60,000 people signed a petition asking for it to go up to £20,000. The government said no. Here is what is going on, why it matters to your pay packet, and what you can actually do about it.

What is the Personal Allowance?

The Personal Allowance is the amount you can earn each year before paying any income tax. Right now, that figure is £12,570.

Earn less than that? You owe HMRC nothing on your income. Earn more? You pay tax on everything above it, at whichever rate applies to you:

Basic rate (20%) on income from £12,571 to £50,270
Higher rate (40%) on income from £50,271 to £125,140
Additional rate (45%) on income above £125,140

So if you earn £30,000, you only pay tax on £17,430 of it. The first £12,570 is yours, free and clear.

Why did 60,000 people sign a petition about it?

Because the cost of living has gone up. A lot. And the amount you can earn tax-free has not moved.

The petition asked for the Personal Allowance to rise from £12,570 to £20,000. The people behind it argued that rent, mortgages, childcare, and energy bills have all got more expensive, but your tax-free threshold has stayed exactly the same. For people on lower incomes, that gap really hurts.

There was also a specific point about work not paying. If childcare costs are high and your tax-free threshold is low, the maths sometimes do not stack up in favour of going back to work. That is a problem the petition wanted to fix.

What did the government say?

Short version: no.

HMRC's official position is that raising the Personal Allowance to £20,000 would cost more than £50 billion a year. That is not a rounding error. To give you a sense of scale, HMRC pointed out that £50 billion is roughly a quarter of the entire NHS budget, or about 80% of what the UK currently spends on defence.

The government's view is that cutting tax receipts by that much would mean cutting the things those receipts pay for. Hospitals, schools, that sort of thing.

So while they acknowledged the pressure people are under, the answer was still no.

Why is the allowance frozen in the first place?

The Personal Allowance was frozen at £12,570 in 2021 and is set to stay there until at least 2028.

Now, frozen does not mean it has gone down. But here is the thing: wages have gone up. Which means more people are now earning above £12,570 than before, and more people are drifting into higher tax bands without getting a pay rise that feels like one.

This is called fiscal drag. It is when the government collects more tax not by raising rates, but by letting inflation and wage growth quietly push people into paying more. Nobody votes on it. It just happens.

Think of it as a slow puncture rather than a blowout. You do not notice it immediately, but over time you are definitely losing air. The Pie Tax Pible has a lot more on how income tax thresholds work if you want to dig in further.

What about pensioners?

This is where it gets a bit awkward for the government.

The state pension goes up every year under something called the triple lock, which means it rises by whichever is highest: inflation, average earnings growth, or 2.5%. That is great for pensioners. Except the Personal Allowance is frozen.

After 2027, the state pension is projected to exceed £12,570 a year. Which would mean pensioners who receive only the state pension would technically owe income tax on it. Tax on a state pension. Not a great headline.

Chancellor Rachel Reeves has acknowledged the problem and said the government is working on a workaround so those pensioners will not have to file a tax return or pay tax in this parliament. The details are still being worked out. If you are approaching retirement or already there, the full picture of how the Personal Allowance applies to pension income is worth reading before you assume you know where you stand.

What support exists if you are on a lower income?

The government rejected the petition but pointed to a few other things.

On wages, the Low Pay Commission sets the national living wage and has been asked to factor in the cost of living when doing so. The rate has gone up in recent years, though critics argue that once tax kicks in, many workers are not left with enough.

On childcare, parents of three- and four-year-olds are entitled to 15 hours of government-funded childcare per week. Working parents of children from nine months old can get up to 30 hours, subject to eligibility.

On benefits, Universal Credit tops up the income of people who are working but earning less. If you are self-employed and on a lower income, it is worth understanding how Universal Credit works alongside your tax bill before assuming the two do not affect each other.

So what can you actually do about your tax bill?

The Personal Allowance is not going up any time soon. But that does not mean your options are limited. There are perfectly legal ways to reduce what you owe.

If you are self-employed, claiming your expenses properly is one of the most straightforward. You can deduct legitimate business costs from your income before your tax bill is worked out, which directly lowers what you pay. The guide on maximising tax relief for the self-employed covers what counts and what does not.

Your tax code is also worth checking. It tells your employer how much tax to take from your pay, and millions of people are on the wrong one without realising it. If yours is wrong, you are likely owed a refund. Understanding how PAYE tax refunds work is a good place to start.

If you have savings, sheltering them inside an ISA means the interest you earn is free of income tax and capital gains tax. Given that savings rates are much better than they were a few years ago, it is worth using. There is a useful piece on how HMRC approaches ISA taxation if you want the detail.

Pension contributions are another option. They come out of your income before tax is calculated, which means every pound you contribute saves you tax at your marginal rate. If you pay 40% tax, every £100 you put in only costs you £60. It is one of the most efficient ways to manage your position.

And if you are self-employed or have income outside of PAYE, filing your Self Assessment accurately matters. Miss a deduction and you pay more than you should. The Pie Self Assessment Software helps track your income and expenses in real time and lets you file directly to HMRC for free.

Will the Personal Allowance ever go up?

Almost certainly, yes. Eventually.

The current freeze runs to at least 2028. After that, there is no guarantee of a significant rise, but historically the allowance has trended upward. It was just £6,475 back in 2009. The freeze is unusual by historical standards and was introduced to help rebuild public finances after the pandemic.

Whether it rises meaningfully enough to undo years of fiscal drag is a different question. For now, the best thing you can do is understand your own tax position and make sure you are not paying more than you need to.

Keep on top of your taxes with Pie

Not sure if Pie is right for you? Here is why people use Pie. If you want to see exactly how it all works before committing to anything, take a look at how it works. And when you are ready, getting started takes minutes. Add your income sources, log your expenses, and see your estimated tax bill update in real time. File directly to HMRC at no cost.

Correct as of the 2025/26 tax year. Tax rules change, so always check current HMRC guidance or speak to a qualified tax adviser about your own situation.