A new tax year begins on Monday, April 6 and with it, all sorts of financial limits and thresholds will be reset or tweaked for 2026-2027. Because HMRC tax rules follow financial rather than calendar years, various allowances and thresholds run from April to April rather than January to December.

From this Monday, April 6, everyone with an income will see their tax-free Personal Allowance limit reset, with a fresh allowance for 2026-27. It means that workers who used up their entire tax-free allowance for 2025-26 will be able to earn more tax-free money for this coming tax year from Monday.

Unfortunately, the bad news is that, unlike state pensions, Universal Credit and various other benefits, the tax-free Personal Allowance will not be increased from April 6.

From April 6, the tax-free Personal Allowance will be reset for the new tax year, but it will be £12,570 again. This is the exact same amount it was last year, and in fact it has not been changed since 2021, when it was put up by £70.

It means that workers can only earn £12,570 tax-free in a single year, before they must start to pay Income Tax at 20% of their income on every £1 above that threshold.

The government explains: “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 are paying an inflation-based salary increase for the new tax year but the Personal Allowance still frozen, it means workers will lose 20% of their extra salary to tax, because the threshold has not been increased for inflation – in real terms, it’s a stealth tax increase, and this is known as ‘fiscal drag’. What’s more, the thresholds will be frozen all the way to 2031, after Chancellor Rachel Reeves announced an extension to the existing freeze.

Money expert Martin Lewis explained on his live ITV1 show in November exactly how it works.

He said: “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.”