Personal tax allowances are tax-free amounts of income that you’re allowed to earn or receive. Several types of personal tax allowance are available and all of the main ones are available to UK sole traders.
Claiming personal tax allowances can reduce your annual sole trader tax bill significantly, so it’s important to know which ones are available to you. This is important as HMRC will not contact you to tell you what you’re entitled to. You need to find out and claim them for yourself.
Here are the main personal tax allowances you might be able to claim, with some basic information on what they could be worth to you.
Personal Allowance
An obvious place to start is the Personal Allowance. This is the amount of income that you can earn or receive before you have to pay any income tax. This allowance applies to self-employed sole traders and employees working for someone else.
The standard Personal Allowance is £12,570 a year (2025/26 tax year). The Personal Allowance decreases by £1 for every £2 of income you receive over £100,000 and if your taxable income is £125,140 or more, the Personal Allowance is not available to you.
Trading allowance
The trading allowance is a tax exemption that allows you to earn £1,000 a year in self-employed income without having to pay any income tax. This can be added to your Personal Allowance. It’s usually claimed by those who do occasional casual work rather than sole traders with a far bigger turnover.
If you claim the trading allowance, you cannot claim allowable expenses for the things you buy for your sole trader business. So, it would not make sense to claim the Trading Allowance if your tax expenses were more than £1,000 within a tax year. Ordinary partnership members cannot claim the Trading Allowance.
Property Allowance
Many sole traders also earn income from renting out property or land. The Property Allowance is another £1,000-a-year tax exemption available to landlords who earn taxable income from land or property they rent out. If you earn sole trader and property rental income, you can claim the Trading Allowance and the Property Allowance, although you cannot claim tax expenses for either if you do. If you jointly own a property, you and your fellow property owners can each claim the £1,000 Property Allowance against your share of the annual rental income.
Dividend Allowance
Sole traders who own company shares may have to pay tax on any dividend income they receive. They can claim the Dividend Allowance, which is a tax-free allowance worth £500 for the 2025/26 tax year (the allowance used to be far higher). Income tax is only payable on dividends above the £500 threshold, providing other taxable income exceeds the Personal Allowance (£12,570 in 2025/26).
Marriage Allowance
If you’re a sole trader who is married or in a civil partnership and your income is less than £12,570 a year (ie the standard Personal Allowance), you may also be able to claim Marriage Allowance, which can reduce your spouse’s/partner’s tax liability. Alternatively, they may be able to claim it to reduce yours.
The Marriage Allowance enables sole traders to transfer £1,260 of their Personal Allowance to their spouse or civil partner, which can reduce their tax by up to £250 in the tax year (or vice versa). Regardless of whether you co-habit with someone, you must be married or in a civil partnership to claim the Marriage Allowance.
Other personal tax allowances
Those who pay the basic rate of income tax can claim the Personal Savings Allowance, which grants up to £1,000 of tax-free interest. Higher-rate income tax payers get £500 a year tax-free, but additional-rate income tax payers don’t qualify for personal savings interest allowance.
You can claim the Blind Person’s Allowance if you or your spouse are registered blind. This could provide an extra £3,130 of tax-free income in 2025/26. If you do not use it all yourself, some of the Blind Person’s Allowance can be transferred to your spouse.
Tax-Free Childcare
If you’re a sole trader with young children, to help cover your childcare costs, you could get up to £500 every three months (ie up to £2,000 a year) for each child. If your child has a disability, you could claim up to £1,000 every three months (ie up to £4,000 a year). To get Tax-Free Childcare, you apply online and set up an online childcare account. Then for every £8 you pay into the account, the government will pay an additional £2 that you can use to pay your chosen childcare provider. If you’re eligible for both, it’s possible to get tax-free childcare as well as 15 or 30 hours of free childcare.
The money must be used to pay for approved childcare, which includes childminders, nurseries and nannies, as well as after school clubs and play schemes. The childcare provider must be signed up to the scheme, so check in advance. Visit government website GOV.UK for more information about Tax-Free Childcare.
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