Are you allowed to copy text from your Master's thesis into your PhD thesis?

No. It's called self-plagiarism. You can of course cite results from your Master's thesis, and even quote it, but only if you clearly indicate the source. That it wasn't published doesn't make a difference.

I did my PhD studies in Sweden. In Sweden it is common to write two theses: a licentiate thesis after roughly 2 years, and a PhD thesis at the end. The second one is a natural extension of the first one, so this question came up. One person said one should rephrase everything, but we thought this was silly. Instead, I wrote a preface in my PhD thesis with the following:

This text can be considered a continuation of the so-called licentiate thesis (Holl, 2011). In the Swedish academic system, the licentiate thesis is a thesis very similar in structure to the PhD thesis, that PhD candidates are encouraged to write approximately halfway through their PhD studies. A lot of the material published here was already published in the licentiate thesis.

Self-plagiarism occurs if you claim information is new, when you've already used it before. Therefore, if you write something like this in a preface, you are not committing self-plagiarism.

However, you should still check if your university has any rules against it.

In UK, this was strictly not allowed (I had asked a similar question to my guide on my Masters thesis). As Johanna correctly says, it is considered "self plagiarism" (you copied from yourself!) and while I do not agree with it, this is a common criteria.

For the same reason, you are not allowed to take any article / essay written by you earlier, and use it in your PhD thesis or your Masters research thesis.

The rationale, I believe, is that each work during your studies should be original and unique, different from what you have written earlier. It cannot build up on your earlier work (at least in the written word - in thoughts of course you have all through been building up on your past knowledge and learning)