London Tax Rates: Income, Council Tax, Stamp Duty, and VAT

London tax rates combine the national UK system with a few charges the capital adds on top. Residents pay the same income tax, National Insurance, VAT, Capital Gains Tax, and dividend tax rates as the rest of England, but their council tax bill includes a Greater London Authority precept, larger commercial properties pay a Business Rate Supplement that funds the Elizabeth line, and Stamp Duty bites harder here because property prices sit well above the national average. The personal allowance for 2025/26 is £12,570, and the income tax bands above it have been frozen since 2021 and will stay frozen until at least April 2028.¹

Income Tax on London Salaries

The UK runs a progressive income tax. Your first £12,570 is tax-free under the personal allowance. Everything above that sits in one of three bands:²

Basic rate of 20% on income from £12,571 to £50,270
Higher rate of 40% on income from £50,271 to £125,140
Additional rate of 45% on income above £125,140

One quirk hits a lot of London professionals. Once your income passes £100,000, the personal allowance shrinks by £1 for every £2 you earn above that line, and it disappears entirely at £125,140.² Between those two thresholds your effective marginal rate reaches 60%, because you pay 40% income tax while losing tax-free allowance at the same time. It is one of the steepest marginal rates in the system.

The band thresholds have been frozen since 2021/22 and will stay frozen through at least 2027/28. The Office for Budget Responsibility estimates that by 2028/29 roughly 4 million more people will be paying income tax and 3 million more will have moved into the higher rate band than would have if thresholds had tracked inflation.³ London’s higher average pay means more residents get pulled up a band each year without any real increase in spending power.

National Insurance

Employees

Employees pay Class 1 National Insurance on top of income tax. For 2025/26:⁴

0% on monthly earnings up to £1,048
8% on monthly earnings between £1,048.01 and £4,189
2% on monthly earnings above £4,189

These deductions come straight out of your payslip. Combined with the basic income tax rate, you keep 72p of every additional pound earned within the basic band. The NI rate falls to 2% at higher pay, but income tax climbs to 40% or 45%, so the overall bite stays heavy.

Employers

Employers pay their own Class 1 contributions at 15% on all earnings above a secondary threshold of £417 per month, or roughly £5,000 per year.⁴ That threshold dropped substantially from April 2025, pushing up the cost of hiring. Eligible businesses can offset up to £10,500 per year through the Employment Allowance.⁵ For London firms paying London salaries, employer NI is often the largest payroll cost after wages themselves.

Self-Employed

Self-employed workers pay Class 4 contributions through self-assessment. The 2025/26 rates are 6% on profits between £12,570 and £50,270 and 2% on profits above £50,270.⁶ The profit limits mirror the income tax thresholds, which keeps the math simple but ties the self-employed to the same frozen levels.

Council Tax and the GLA Precept

Council tax is where London’s picture diverges most visibly from the rest of England. Each of the 32 boroughs and the City of London sets its own rate, and the spread is enormous. For 2026/27, Band D council tax runs from around £1,028 in Wandsworth to roughly £2,609 in Kingston upon Thames. Two residents living a few miles apart can pay more than double what a neighbour pays for essentially the same services.

Every property is assigned one of eight valuation bands (A through H) based on what it would have sold for in April 1991.⁷ The Valuation Office Agency assigns and maintains those bands.⁸ The valuations have never been updated, so a home worth £68,000 in 1991 that now sells for £400,000 or more is still taxed in Band A. In a city where prices have grown far faster than the national average, that produces some obvious distortions.

Your bill has two components: a charge from your borough and a precept from the Greater London Authority. The GLA precept for 2026/27 is £510.51 per Band D property, a 4.1% rise on the prior year.⁹ It funds the Metropolitan Police, London Fire Brigade, and Transport for London among other citywide services.⁸ The precept shows as a separate line on your bill but you pay it as part of a single monthly or annual amount to your borough.

Stamp Duty When Buying in London

Stamp Duty Land Tax is where London’s property market makes the tax picture genuinely different. With the median London price well above the national average, most buyers here land in the higher tiers of a system that barely touches transactions in cheaper regions. The current residential rates, in force from April 2025, are:¹⁰

0% on the first £125,000
2% on the portion from £125,001 to £250,000
5% on the portion from £250,001 to £925,000
10% on the portion from £925,001 to £1.5 million
12% on anything above £1.5 million

These thresholds tightened in April 2025 when pandemic-era reliefs expired. The 0% band was £250,000 and is now back to £125,000, adding thousands to the bill on a typical London purchase.

First-Time Buyer Relief

First-time buyers get a more generous structure, but only if the property costs £500,000 or less. Under the relief, no Stamp Duty applies to the first £300,000, and a 5% rate covers the portion between £300,001 and £500,000.¹⁰ If the price exceeds £500,000, the relief disappears entirely and standard rates apply to the full amount. That ceiling eliminates most of central London from first-time buyer relief territory, though it still works in outer boroughs.

Surcharges for Additional Properties and Non-UK Residents

Buyers who already own residential property pay a 5% surcharge on top of every band when purchasing an additional home or buy-to-let investment.¹⁰ The surcharge was 3% until late 2024, and the rise hit London’s buy-to-let market hard given already elevated prices. On a £600,000 second property, the surcharge alone adds £30,000.

Non-UK residents face a further 2% surcharge on all residential purchases, stacked on top of both the standard rates and, where applicable, the additional property surcharge.¹¹ A non-resident buying a £1 million London flat as a second home can see combined surcharges push the effective rate well above 10% on most of the price.

Capital Gains Tax When You Sell

Selling a property or other asset at a profit triggers Capital Gains Tax on the gain above a £3,000 annual exempt amount.¹² That exempt amount was £12,300 as recently as 2022/23, so most London property sales that fall outside the main residence exemption will now generate a taxable gain.

Rates on residential property gains from April 2025 are 18% for basic rate taxpayers and 24% for higher or additional rate taxpayers.¹³ If your income plus the gain straddles the basic rate band, part of the gain is taxed at 18% and the rest at 24%. Your main home is normally exempt, but the exemption doesn’t cover second homes, buy-to-lets, or any part of a home that was let out or used exclusively for business.

Dividend Tax

Shareholders and owner-directors get a £500 tax-free dividend allowance for 2025/26 and 2026/27. Dividends above that sit below the equivalent income tax bands but are still meaningful:¹⁴

Basic rate of 10.75%
Higher rate of 35.75%
Additional rate of 39.35%

Dividend income stacks on top of your other income when the band is determined, so even a modest dividend can push you across a threshold. Owner-directors who pay themselves partly in dividends, a common structure in London’s freelance and consulting economy, need to weigh these rates against the corporation tax their company already paid on the same profits.

Business Rates and the Crossrail Supplement

Commercial occupiers pay business rates based on the rateable value of their premises, which the Valuation Office Agency sets from estimated open-market rents. You calculate the annual bill by multiplying the rateable value by a government-set multiplier expressed in pence per pound.

From April 2026, the multiplier structure moved from two flat rates to tiers based on rateable value and sector:¹⁵

Rateable value below £51,000: 43.2p, or 38.2p for retail, hospitality, and leisure
Rateable value £51,000 to £499,999: 48p, or 43p for retail, hospitality, and leisure
Rateable value £500,000 or more: 50.8p

The lower multipliers for retail, hospitality, and leisure replaced an earlier flat percentage discount. Pubs and live music venues in 2026/27 can claim a further 15% relief on top of whatever multiplier applies.

London commercial properties also face the Business Rate Supplement, an extra 2p per pound that funds the Elizabeth line. Only properties with a rateable value of £75,001 or higher are liable.¹⁶ This is a London-specific charge that businesses elsewhere in England don’t pay. On a central London office with a rateable value of £200,000, it adds £4,000 to the annual bill.

VAT and the Registration Threshold

VAT applies to most goods and services at a standard rate of 20%.¹⁷ A reduced rate of 5% covers categories like home energy and children’s car seats, and staples such as most food and children’s clothing are zero-rated. VAT is a national tax rather than a London-specific one, but it matters here because any business with taxable turnover above £90,000 must register and charge it.¹⁸ London’s higher prices and rents mean small businesses cross that line faster than they might elsewhere. Businesses below £90,000 can register voluntarily, which lets them reclaim VAT on purchases but requires charging it to customers.

1
GOV.UK. Income Tax Rates and Allowances for Current and Previous Tax Years
2
GOV.UK. Income Tax Rates and Personal Allowances
3
Office for Budget Responsibility. Fiscal Implications of Personal Tax Threshold Freezes and Reductions
4
GOV.UK. National Insurance Rates and Categories
5
GOV.UK. Employment Allowance – What You’ll Get
6
GOV.UK. Rates and Allowances – National Insurance Contributions
7
City of London. Council Tax Bands and Charges
8
London Borough of Havering. Council Tax Bands and Bills
9
London City Hall. The Mayor’s Budget
10
GOV.UK. Stamp Duty Land Tax – Residential Property Rates
11
GOV.UK. Rates of Stamp Duty Land Tax for Non-UK Residents
12
GOV.UK. Capital Gains Tax Rates and Allowances
13
GOV.UK. Capital Gains Tax – What You Pay It On, Rates and Allowances
14
GOV.UK. Check if You Have to Pay Tax on Dividends
15
GOV.UK. Estimate Your Business Rates
16
London City Hall. Paying for Crossrail – Business Rate Supplement
17
GOV.UK. VAT Rates
18
GOV.UK. Increasing the VAT Registration Threshold