What Is Income Tax in the UK? Rates, Bands, and Reliefs

Income tax in the UK is a percentage of your earnings that HMRC collects to fund public services. Most people can earn £12,570 a year before paying any, and above that the rate climbs in steps: 20%, 40%, and 45% in England, Wales, and Northern Ireland, or six separate rates from 19% to 48% in Scotland.¹ What you actually pay depends on how much you earn, what kind of income it is, and where in the UK you live. The main thresholds are frozen until at least April 2031, so the same figures will apply for several tax years.²

The Personal Allowance

The Personal Allowance is the amount you can earn each year before any income tax is due. It sits at £12,570 and applies to most people whether they are employed, self-employed, or retired.¹ Because the figure is frozen while wages rise, more people are being pulled into paying tax each year even when their real income hasn’t changed.

Two things can shift your allowance. If you are registered blind or severely sight-impaired, the Blind Person’s Allowance adds £3,130 to your tax-free amount for 2025/26.³ At the other end, high earners lose it. Once your adjusted net income passes £100,000, the allowance drops by £1 for every £2 above that line, and it disappears entirely at £125,140.¹ The effect between those two points is an effective 60% marginal rate, which is worth knowing if a bonus or pay rise takes you into that zone.

Rates and Bands in England, Wales, and Northern Ireland

The UK uses a marginal system. You do not pay a flat rate on your whole income; each slice is taxed at its band’s rate. Crossing into a higher band never reduces your take-home pay, because only the money inside that band is taxed at the higher rate. For 2026/27 (6 April 2026 to 5 April 2027):⁴

Personal Allowance, up to £12,570: 0%
Basic rate, £12,571 to £50,270: 20%
Higher rate, £50,271 to £125,140: 40%
Additional rate, above £125,140: 45%

Take someone earning £60,000. They pay nothing on the first £12,570, then 20% on the next £37,700 (the portion up to £50,270), and 40% only on the remaining £9,730. The total bill is roughly £11,432, not the £24,000 you might expect if you assumed 40% applied to everything.

Scottish Income Tax

Scotland sets its own rates through the Scottish Parliament, and they differ significantly from the rest of the UK. Scottish taxpayers still get the same £12,570 Personal Allowance, but the bands above it are split into six tiers. For 2026/27:⁵

Starter rate, £12,571 to £16,537: 19%
Basic rate, £16,538 to £29,526: 20%
Intermediate rate, £29,527 to £43,662: 21%
Higher rate, £43,663 to £75,000: 42%
Advanced rate, £75,001 to £125,140: 45%
Top rate, above £125,140: 48%

Scottish residents earning below about £29,500 pay slightly less than their English counterparts, because the starter rate is 1% lower. Above that, the picture reverses, and a Scottish taxpayer on £60,000 faces a noticeably higher bill than someone with identical income in England. Which set of rates applies is decided by where you live, not where your employer is based.⁶

Welsh Income Tax

Wales has the power to set its own rates but currently keeps them identical to England and Northern Ireland: 20%, 40%, and 45% across the same bands.⁷ Welsh taxpayers see a “C” prefix on their tax code, which flags residency to HMRC without changing what they owe.

What Income Is Taxed

HMRC taxes most money coming in. Wages, profits from self-employment, and pension payments (including the State Pension) are the obvious ones. Rental income from property you own counts, as does interest on savings above certain limits. Some state benefits are also taxable, including Jobseeker’s Allowance, Carer’s Allowance, and Employment and Support Allowance.⁸ People get caught out by that last group, assuming all benefits arrive tax-free.

Several types of income are exempt. Lottery and betting winnings are not taxed, and neither are Premium Bond prizes. Interest earned inside an Individual Savings Account (ISA) is sheltered completely. If you rent out a furnished room in your home, the Rent a Room Scheme lets you receive up to £7,500 a year tax-free.⁹ Separate £1,000 allowances also cover small-scale trading income and property income, so if you earn under £1,000 from either you do not need to report it.¹⁰

Dividends and Savings Interest

Dividends from shares held outside an ISA come with a £500 tax-free allowance. Anything above that is taxed at rates lower than standard income tax, though the rates are increasing from April 2026: the basic rate for dividends rises to 10.75% and the higher rate to 35.75%.¹¹ Dividends count toward your total income when working out which band you fall into, and they sit as the top slice.

Savings interest works through the Personal Savings Allowance. Basic rate taxpayers can earn up to £1,000 in interest tax-free, higher rate taxpayers get £500, and additional rate taxpayers get nothing. Interest inside an ISA does not count toward those limits, which is why ISAs remain the simplest way to shelter savings income. Banks and building societies report your interest to HMRC automatically, and if you exceed your allowance the tax is usually collected by adjusting your tax code the following year.

How the Tax Reaches HMRC

PAYE and Tax Codes

Most employees and pensioners pay through Pay As You Earn. Your employer or pension provider deducts tax from each payment before you receive it, based on the code HMRC assigns you.¹² The standard code for someone with a full Personal Allowance is 1257L, telling your employer to let you earn £12,570 before deducting anything.

Codes change when your circumstances do: a new job, taxable benefits, tax owed from a previous year, or claiming certain allowances. A wrong code means you are overpaying or underpaying every payday. You can check yours through the HMRC online service and ask for a correction if something looks off.¹³ A lot of people lose money without noticing, on the assumption that PAYE handles everything perfectly.

Self Assessment

If your situation is too complex for PAYE, you file a Self Assessment return instead. You will need one if you are self-employed, have significant rental income, receive untaxed foreign income, or need to pay the High Income Child Benefit Charge.¹⁴ The key dates for the 2025/26 tax year are:

5 October 2026: register with HMRC if you have never filed before
31 October 2026: paper return deadline
31 January 2027: online return and payment deadline

Miss 31 January and HMRC charges £100 immediately, even if you owe nothing.¹⁵ After three months, daily penalties of £10 begin and can run for up to 90 days. At six months and twelve months, additional charges of the higher of £300 or 5% of the tax owed apply. The penalties stack, so a return over a year late can easily generate more than £1,600 in charges before interest on unpaid tax is counted.

National Insurance

National Insurance is not technically income tax, but it comes off your pay alongside it and feels the same. The difference is that NI funds specific benefits like the State Pension and statutory sick pay, while income tax goes into general revenue. For 2026/27, employees pay Class 1 contributions at 8% on earnings between £12,570 and £50,270, and 2% above that.⁴ Self-employed workers pay Class 4 instead: 6% on profits between £12,570 and £50,270, and 2% above.

Reliefs Worth Claiming

If you are married or in a civil partnership and one of you earns below the Personal Allowance, the lower earner can transfer £1,260 of their unused allowance to the other. The receiving partner has to be a basic rate taxpayer. The saving is modest, up to £252 a year, but you can backdate a claim by up to four years, which makes it worth doing even if you missed it originally.¹⁶

When you donate to charity through Gift Aid, the charity reclaims basic rate tax on your donation, turning a £10 gift into £12.50 at no extra cost to you. Higher and additional rate taxpayers can claim the difference between their rate and the basic rate through a tax return. Payroll Giving schemes let you donate straight from your wages before tax is deducted, giving immediate relief at your highest marginal rate.¹⁷

The High Income Child Benefit Charge

If either you or your partner claims Child Benefit and one of you earns over £60,000, the higher earner pays some or all of it back through the High Income Child Benefit Charge. The clawback is gradual: for every £200 of income above £60,000, you lose 1% of the Child Benefit. At £80,000 you effectively repay all of it.¹⁸ The charge is collected through Self Assessment, so if it applies to you and you are not registered, you need to sign up. Some couples opt out of receiving Child Benefit entirely to avoid the paperwork, but this can cost the non-working partner National Insurance credits toward their State Pension, so run the numbers before deciding.

1
GOV.UK. Income Tax Rates and Personal Allowances
2
GOV.UK. Income Tax: Maintaining the Personal Allowance and the Basic Rate Limit
3
GOV.UK. Blind Person’s Allowance: What You’ll Get
4
GOV.UK. Rates and Thresholds for Employers 2026 to 2027
5
Scottish Government. Scottish Income Tax Rates and Bands 2026 to 2027
6
GOV.UK. Income Tax in Scotland: Current Rates
7
GOV.UK. Income Tax in Wales
8
GOV.UK. Tax-Free and Taxable State Benefits
9
GOV.UK. HS223 Rent a Room Scheme
10
GOV.UK. Tax-Free Allowances on Property and Trading Income
11
GOV.UK. Changes to Tax Rates for Property, Savings and Dividend Income
12
GOV.UK. PAYE and Payroll for Employers: Introduction to PAYE
13
GOV.UK. Why Your Tax Code Might Change
14
GOV.UK. Register for Self Assessment If You Are Not Self-Employed
15
GOV.UK. Self Assessment Tax Returns: Deadlines
16
GOV.UK. Marriage Allowance: How It Works
17
GOV.UK. Donating Straight From Your Wages or Pension
18
GOV.UK. Income Tax: Increasing the High Income Child Benefit Charge Threshold