Understanding how income tax works in the UK is important for anyone earning money, whether you are employed, self-employed, or running a business. This guide breaks down the tax bands and allowances for the 2025/26 tax year in simple terms.

What Is Income Tax?

Income tax is a tax you pay on your earnings. This includes wages from employment, profits from self-employment, pensions, rental income, and more. HMRC collects this tax to fund public services like the NHS, education, and infrastructure.

Your Personal Allowance

The Personal Allowance is the amount you can earn each year before you start paying income tax. For most people in 2025/26, this is:

• £12,570 – the standard tax-free Personal Allowance.
• If you earn over £100,000, this allowance is gradually reduced by £1 for every £2 earned over that amount.

UK Income Tax Bands (2025/26)

Once you exceed your personal allowance, the rest of your income is taxed in the following bands:

• Basic Rate (20%) – on income between £12,571 and £50,270
• Higher Rate (40%) – on income between £50,271 and £125,140
• Additional Rate (45%) – on income over £125,140

Only the portion of your income that falls within each band is taxed at that rate — not your whole salary.

Examples

Example 1: Earning £30,000

• First £12,570 – tax-free (Personal Allowance)
• Next £17,430 – taxed at 20% = £3,486
• Total Tax: £3,486

Example 2: Earning £70,000

• First £12,570 – tax-free
• £12,571 to £50,270 – taxed at 20% = £7,539.80
• £50,271 to £70,000 – taxed at 40% = £7,892
• Total Tax: £15,431.80

Other Allowances

You may also be entitled to additional tax-free allowances:

• Marriage Allowance – allows you to transfer up to £1,260 of your personal allowance to your spouse if you earn less than £12,570 and they are a basic rate taxpayer.
• Savings Allowance – up to £1,000 of interest is tax-free for basic rate taxpayers (£500 for higher rate).
• Dividend Allowance – the first £500 of dividend income is tax-free in 2025/26.

Check Your Tax Code

Your tax code tells your employer how much tax to deduct from your pay. It's usually based on your Personal Allowance (e.g., code 1257L). You should ensure that your tax code is correctr to avoid overpaying or underpaying.

Use a Tax Calculator

Want to see how much tax you'll pay based on your exact income? Try our Take-Home Pay Calculator to get a full breakdown after tax, National Insurance, and student loans.