The 2026 personal allowance freeze — what it means in practice
The continued freeze pulls more pensioners into the higher-rate band. Three practical responses we are using for clients this year.
The personal allowance has now been frozen at £12,570 since April 2021. With pension and other indexed income rising — the triple lock pushed the new state pension above £12,000 this April — the freeze is no longer an abstraction. It is the single most common reason our clients have moved into a higher tax band over the past three years.
The arithmetic
A married couple in their seventies, both with full new state pensions and modest private pension income, are likely to be paying basic-rate tax on income they were not paying any tax on five years ago. A higher-income retiree drawing £75,000 a year from a self-invested pension is, with the personal allowance frozen, paying around £1,300 a year more in tax than they would have done had the allowance moved with inflation.
These are not catastrophic numbers in isolation. Compounded over a twenty-year retirement, they become material — particularly when ISA dividend and CGT allowances have moved in the same restrictive direction.
Three responses we are using this year
One. Re-examining drawdown sequencing. For clients with both pension and ISA assets, we are reviewing whether their drawdown is currently set up to minimise the effective tax rate. In several cases this year we have moved clients from a "pension first, ISA later" model to a blended approach — drawing modest pension income up to the basic-rate ceiling, then topping up from ISA for the tax-free portion of the spending envelope.
Two. Marriage allowance audit. With more couples now both inside the tax net, the marriage allowance is back in scope where it would not previously have been useful. The £1,260 transfer is small, but the four-year backdating window can be a few thousand pounds.
Three. Charity giving structure. For clients who give regularly and were already donating via gift aid, we are looking at whether the personal allowance freeze has changed the calculus on lump-sum giving versus monthly direct debits. In several cases the answer is that the lump-sum-with-tax-claim route now saves more than it did three years ago.
What we are not doing
We are not chasing exotic structures. A pension allowance freeze is best addressed by careful, conventional planning, repeated annually, not by reaching for products that promise tax savings of an order of magnitude greater than the problem.
If you would like us to take a look at your specific position, please write to us in the usual way and we will fit you in.