UK Income Tax Rates & Bands 2025/26

The Personal Allowance

The Personal Allowance is the amount of income you can earn before you start paying income tax. For 2025/26, it remains frozen at £12,570 — the same as it has been since April 2021. The freeze means that as wages rise with inflation, more people are pulled into higher tax bands — a policy known as fiscal drag. The allowance is reduced by £1 for every £2 of income above £100,000, disappearing entirely at £125,140. If you earn just above £100,000 and have room to make pension contributions, doing so can reduce your adjusted net income below the £100,000 threshold and restore your full Personal Allowance.

"The Personal Allowance is the amount of income you can earn before you start paying income tax"

2025/26 Income Tax Bands (England, Wales & Northern Ireland)

Income tax rates and bands for 2025/26 in England, Wales, and Northern Ireland: Personal Allowance — 0% on income up to £12,570. Basic rate — 20% on income from £12,571 to £50,270. Higher rate — 40% on income from £50,271 to £125,140. Additional rate — 45% on income above £125,140. These bands apply to most types of income including employment income, rental income, and trading profits. Savings income and dividend income are taxed differently using their own allowances and rates.

Scottish Income Tax Rates 2025/26

Scottish taxpayers pay a different set of rates on their non-savings, non-dividend income. Scotland has six tax bands: Starter rate (19%) on income from £12,571 to £15,397. Basic rate (20%) from £15,398 to £27,491. Intermediate rate (21%) from £27,492 to £43,662. Higher rate (42%) from £43,663 to £75,000. Advanced rate (45%) from £75,001 to £125,140. Top rate (48%) above £125,140. The Scottish rates are set by the Scottish Parliament independently of Westminster. If you live in Scotland, your payslip tax code will start with S (e.g. S1257L) to indicate Scottish rates apply.

Savings Interest and the Personal Savings Allowance

Interest earned on savings outside of an ISA is taxable, but the Personal Savings Allowance (PSA) means most people pay no tax on savings interest. Basic rate taxpayers get a £1,000 PSA; higher rate taxpayers get a £500 PSA; additional rate taxpayers get no PSA. Interest above your PSA is taxed at your marginal income tax rate. With savings rates at 4–5% in 2025, a higher rate taxpayer earning 5% on £10,000 would earn £500 in interest — right at their PSA limit. Holding savings inside a Cash ISA sidesteps this entirely, as ISA interest never counts toward your PSA or tax bill.

"Basic rate taxpayers get a £1,000 PSA; higher rate taxpayers get a £500 PSA; additional rate taxpayers get no PSA"

Dividend Tax Rates 2025/26

Dividends are taxed at lower rates than income, but the Dividend Allowance has been reduced sharply in recent years. In 2025/26, the Dividend Allowance is £500 — down from £5,000 in 2017/18. Dividends above this are taxed at: 8.75% (basic rate taxpayers), 33.75% (higher rate), 39.35% (additional rate). For company directors who pay themselves partly in dividends, the reduction in the Dividend Allowance has significantly increased the tax efficiency advantage of pension contributions over dividend extraction.

The 60% Marginal Tax Trap

Earners between £100,000 and £125,140 face one of the highest effective marginal tax rates in the UK — around 60%. This is because every £1 of income above £100,000 costs 40p in higher rate income tax plus 50p in lost Personal Allowance (which itself saves 40p in tax). The result: earning an extra £1,000 of income in this band costs £600 in tax. The most effective solution is to reduce your adjusted net income below £100,000 using pension contributions. Every £1 contributed to a pension reduces your adjusted net income by £1, potentially restoring Personal Allowance and avoiding this trap.

How Tax Codes Work

Your tax code tells your employer how much tax-free income to give you each year. The most common code is 1257L — the number 1257 represents £12,570 of tax-free income (drop the last digit, add a zero). Letter suffixes indicate your situation: L means you have the standard Personal Allowance; M and N are used for Marriage Allowance transfers; K means you have a negative allowance (often because of unpaid tax or taxable benefits in kind); W1 or M1 means your tax is being calculated week-by-week or month-by-month rather than cumulatively. Check your code on every payslip. If it does not match your circumstances, contact HMRC — you may be overpaying or underpaying tax.

"Your tax code tells your employer how much tax-free income to give you each year"

Reducing Your Tax Bill Legally

There are several legitimate ways to reduce your income tax liability. Pension contributions: payments to a pension reduce your adjusted net income, which affects both your tax band and your Personal Allowance. Basic rate relief is added automatically; higher rate taxpayers must claim the additional relief through Self Assessment. ISAs: income and gains inside an ISA are tax-free and do not count toward the Personal Allowance taper or PSA. Marriage Allowance: if one spouse earns below the Personal Allowance and the other is a basic rate taxpayer, the lower earner can transfer £1,260 of their allowance, saving £252/year. Gift Aid: donations reduce your adjusted net income in the same way as pension contributions.