Understanding the tax-free allowances available to UK business owners is essential for effective tax planning and maximising profits. In 2026/26, these allowances can significantly reduce your tax liability, helping you keep more of what you earn while staying fully compliant with HMRC regulations.
| Allowance | 2026/27 Threshold | Who It Applies To | Purpose |
|---|---|---|---|
| Personal Allowance | £12,570 | All UK taxpayers | Tax-free income before income tax applies |
| Dividend Allowance | £1,000 | Shareholders / company owners | Tax-free dividend income |
| Capital Gains Annual Exempt Amount | £6,000 | Individuals disposing of assets | Tax-free capital gains |
| Trading Allowance | £1,000 | Small traders and casual sellers | Tax-free trading income |
| Property Allowance | £1,000 | Landlords with small rental income | Tax-free property income |
Personal Allowance: Your Main Income Tax Shield
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Use Free Tax Calculator →The Personal Allowance is the cornerstone of individual tax relief, representing the amount of income you can earn tax-free each tax year. For the 2026/27 tax year, the standard Personal Allowance is £12,570. This allowance applies to most UK taxpayers, including sole traders and individuals receiving income from various sources.
Once your income exceeds £100,000, your Personal Allowance reduces by £1 for every £2 earned above this limit. This means that high earners may lose their Personal Allowance entirely if their income surpasses £125,140. It's important to factor this tapering effect into your tax planning if you expect your income to reach these levels.
Dividend Allowance: Tax-Free Dividends for Company Owners
If you run a limited company and pay yourself dividends, the Dividend Allowance is critical. For 2026/26, you can receive up to £1,000 in dividends tax-free. Dividends above this threshold are subject to dividend tax rates, which vary depending on your overall income tax band.
Dividend tax rates for 2026/26 are:
- 8.75% on dividends within the basic rate band
- 33.75% within the higher rate band
- 39.35% within the additional rate band
Using the Dividend Allowance effectively can reduce your personal tax bill and maximise the benefits of running a limited company. For more on company structures and tax implications, see Sole Trader vs Limited Company.
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Capital Gains Annual Exempt Amount: Tax-Free Gains on Asset Sales
When you sell or dispose of assets such as property (not your main home), shares, or business assets, you may realise a capital gain. The Capital Gains Tax (CGT) Annual Exempt Amount for individuals in 2026/26 is £6,000, down from previous years. This means you pay no CGT on gains up to this figure.
For gains above this allowance, CGT rates depend on the asset type and your income tax band. For example, gains on residential property attract 18% or 28%, whereas other assets are taxed at 10% or 20% for basic and higher/additional rate taxpayers respectively.
How to Use the Capital Gains Allowance
To make the most of this allowance, consider:
- Timing the sale of assets across tax years to utilise multiple annual exemptions.
- Transferring assets to a spouse or civil partner to use their exemption too.
- Claiming reliefs such as Business Asset Disposal Relief where eligible.
More details can be found on HMRC’s CGT guidance at GOV.UK.
Trading and Property Allowances: Simplified Reliefs for Small Income
For small-scale business owners or landlords, two useful tax-free allowances exist to simplify record-keeping and reduce tax liability.
Trading Allowance: You can earn up to £1,000 tax-free from casual or small-scale trading activities without registering for Self Assessment or keeping detailed accounts. This is ideal for hobbyists or occasional sellers.
Property Allowance: If you receive rental income from land or property, you can earn up to £1,000 tax-free without needing to declare it. Above this threshold, you must declare the income but can still deduct allowable expenses.
Claiming the Allowances
To claim either allowance, you simply offset the £1,000 against your income of that type. If your income is below £1,000, you do not need to declare it. However, if your expenses are higher than £1,000, it may be more beneficial to declare the income and deduct actual expenses instead.
Remember, you cannot claim both allowances on the same income, and the allowances do not apply if you are VAT registered for that activity.
Maximising Your Tax-Free Allowances: Practical Tips
To make the most of your tax-free allowances and planning opportunities, consider these practical steps:
- Keep accurate records: Even if you qualify for allowances like the trading or property allowance, maintaining good records helps verify your position to HMRC and prepares you for future growth.
- Use your spouse’s allowances: Transferring assets or income sources to a spouse can help utilise their Personal Allowance or Capital Gains Allowance, reducing overall household tax.
- Plan dividend payments: Spread dividends between tax years to maximise the £1,000 dividend allowance each year.
- Consider timing asset disposals: Spreading gains across different tax years can allow you to use multiple Capital Gains Annual Exempt Amounts.
- Review your business structure: The choice between sole trader and limited company has tax implications; check out our guide on sole trader vs limited company for more information.
Tax planning with allowances can save you significant sums, but always ensure compliance by consulting HMRC guidance or a professional adviser.
- The Personal Allowance (£12,570) is the primary tax-free income threshold for most individuals.
- Limited company owners benefit from the £1,000 Dividend Allowance on tax-free dividends.
- The Capital Gains Annual Exempt Amount (£6,000) shields gains on asset disposals from CGT.
- Trading and Property Allowances (£1,000 each) simplify tax for small-scale trading and rental income.
- Effective tax planning can maximise these allowances — consider timing income and asset disposals, and the tax structure of your business.
Can I combine the trading allowance with the property allowance?
No, you cannot claim both the trading allowance and the property allowance on the same income. Each allowance applies separately to different income types, so ensure you apply the correct one to your earnings.
What happens if my income exceeds the Personal Allowance threshold?
If your income exceeds £100,000, your Personal Allowance reduces gradually by £1 for every £2 earned above this limit. Once income reaches £125,140, the allowance is fully withdrawn, and you pay tax on all your income.
How can I use the Capital Gains Annual Exempt Amount effectively?
You can maximise this allowance by timing asset disposals across different tax years, transferring assets to a spouse to use their allowance, and claiming any available reliefs. Planning disposals carefully helps reduce your Capital Gains Tax bill.
Official Sources
* GOV.UK: Set up a business · * HMRC: Income Tax rates · * HMRC: Corporation Tax · * HMRC: VAT registration