UK Tax Guide 2025/26: Everything You Need to Know
The 2025/26 tax year brings important changes to UK taxation. Whether you're employed, self-employed, or managing investments, understanding these changes is crucial for accurate tax planning.
1. Income Tax Brackets 2025/26
The UK government has frozen tax thresholds until 2028, meaning more people will pay higher rates due to fiscal drag. Here are the current rates:
| Tax Band | Income Range | Tax Rate |
|---|---|---|
| Personal Allowance | £0 - £12,570 | 0% |
| Basic Rate | £12,571 - £50,270 | 20% |
| Higher Rate | £50,271 - £125,140 | 40% |
| Additional Rate | Over £125,140 | 45% |
Source: HMRC - Income Tax rates and Personal Allowances (GOV.UK, October 2024)
2. National Insurance Contributions 2025/26
National Insurance (NI) rates have been reduced for employees, providing additional take-home pay:
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- Primary Threshold: £12,570 per year (£242 per week)
- Rate on earnings £12,571-£50,270: 12% (reduced from 13.25%)
- Rate on earnings above £50,270: 2%
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- Lower Profits Limit: £12,570
- Rate on profits £12,571-£50,270: 9%
- Rate on profits above £50,270: 2%
Source: HMRC - National Insurance rates and categories (GOV.UK, October 2024)
3. How to Calculate Your Take-Home Salary
Calculating your actual take-home pay involves subtracting Income Tax, National Insurance, and pension contributions from your gross salary. Here's a practical example:
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- Gross Salary: £35,000
- Personal Allowance: £12,570 (tax-free)
- Taxable Income: £22,430 (£35,000 - £12,570)
- Income Tax: £4,486 (20% of £22,430)
- National Insurance: £2,691.60 (12% of £22,430)
- Take-Home Pay: £27,822.40 per year (£2,318.53 per month)
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Calculate Now →4. Tax-Free Allowances and Reliefs
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- Basic rate taxpayers: £1,000 tax-free interest
- Higher rate taxpayers: £500 tax-free interest
- Additional rate taxpayers: £0 (no allowance)
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- Tax-free dividend income: £500 (reduced from £1,000)
- Basic rate dividend tax: 8.75%
- Higher rate dividend tax: 33.75%
- Additional rate dividend tax: 39.35%
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- Annual exempt amount: £3,000 (significantly reduced from £12,300)
- Basic rate CGT: 10% (18% for property)
- Higher rate CGT: 20% (28% for property)
Source: HMRC - Tax-free and tax-efficient savings and investments (GOV.UK, October 2024)
5. Marriage Allowance
If you're married or in a civil partnership, you may be able to transfer £1,260 of your Personal Allowance to your partner if they earn more than you. This can reduce their tax by up to £252 per year.
Eligibility: One partner must earn less than £12,570, and the other must be a basic rate taxpayer.
6. Pension Tax Relief
Pension contributions receive tax relief at your highest rate of income tax:
- Basic rate taxpayers: 20% relief automatically added
- Higher rate taxpayers: Can claim additional 20% via tax return
- Additional rate taxpayers: Can claim additional 25% via tax return
- Annual allowance: £60,000 (or 100% of earnings, whichever is lower)
7. Key Dates for 2025/26 Tax Year
- 6 April 2024: Start of tax year
- 31 October 2024: Paper tax return deadline (2023/24)
- 31 January 2025: Online tax return deadline (2023/24)
- 31 January 2025: Payment deadline for 2023/24 tax
- 31 July 2025: Second payment on account deadline
- 5 April 2025: End of tax year
8. Common Tax Planning Strategies
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Contributing to a pension not only saves for retirement but also reduces your taxable income. Higher rate taxpayers save 40% tax on pension contributions.
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The ISA allowance for 2025/26 is £20,000. All growth and income within ISAs is completely tax-free.
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Salary sacrifice arrangements for pensions can save both Income Tax and National Insurance contributions.
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Transferring assets to a lower-earning spouse can utilise their unused allowances and lower tax rates.
Quick Tax-Saving Tip: Salary Sacrifice for Pensions
If your employer offers a salary sacrifice arrangement for pension contributions, this is one of the most tax-efficient strategies available in 2025/26. Under salary sacrifice, you agree to reduce your gross salary in exchange for a higher employer pension contribution. The key advantage is that you save both Income Tax and National Insurance on the sacrificed amount, rather than just Income Tax with standard pension relief. For a higher rate taxpayer earning £60,000 who sacrifices £5,000 into their pension, the NI saving alone is worth approximately £100 per year on top of the income tax relief. Your employer also saves 13.8% employer NI on the sacrificed amount, and many employers pass some of this saving on as an additional pension contribution. Check with your HR department whether salary sacrifice is available, as it is not mandatory for employers to offer it.
9. How UK Calculator Can Help
Our suite of free calculators helps you make informed financial decisions:
- Income Tax Calculator - Calculate tax on any income amount
- Salary Calculator - See your exact take-home pay
- VAT Calculator - Quick VAT calculations for businesses
- Mortgage Calculator - Plan your mortgage payments
- Pension Calculator - Estimate pension growth and tax relief
10. Further Resources
For official tax information and guidance, we recommend these authoritative sources:
- HMRC Official Website: www.gov.uk/hmrc
- Income Tax Rates: www.gov.uk/income-tax-rates
- National Insurance: www.gov.uk/national-insurance
- Self Assessment: www.gov.uk/self-assessment-tax-returns
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Visit UK Calculator →Common Tax Mistakes to Avoid in 2025/26
Many UK taxpayers inadvertently pay more tax than necessary or face unexpected HMRC penalties. Here are the most common mistakes and how to avoid them:
1. Missing the Self Assessment Deadline
The deadline for online Self Assessment tax returns is 31 January following the end of the tax year. Missing this date results in an automatic £100 penalty from HMRC, even if you owe no tax. After three months, daily penalties of £10 per day (up to 90 days) apply. If you are six months late, HMRC charges either 5% of the tax due or £300, whichever is greater. Set calendar reminders well in advance to avoid these unnecessary costs.
2. Not Claiming All Eligible Allowances
Many taxpayers overlook allowances that could reduce their tax bill. Beyond the Personal Allowance, consider the following: the Marriage Allowance lets eligible couples transfer up to £1,260, saving the higher-earning spouse up to £252. The Blind Person's Allowance adds £2,870 to your tax-free income. If you work from home, you may claim the employment allowance of £6 per week (£312 per year) without providing receipts, or more with evidence of actual costs. Professional subscriptions to HMRC-approved bodies are also deductible.
3. Ignoring the Personal Allowance Taper
If your adjusted net income exceeds £100,000, your Personal Allowance is reduced by £1 for every £2 above this threshold. This effectively creates a 60% marginal tax rate between £100,000 and £125,140. A common strategy is to increase pension contributions to bring your adjusted net income below £100,000, thereby restoring your full Personal Allowance. For example, if you earn £110,000, contributing £10,000 to a pension not only gets tax relief but also restores £5,000 of Personal Allowance.
4. Not Checking Your Tax Code
The standard tax code for 2025/26 is 1257L, reflecting the £12,570 Personal Allowance. However, HMRC sometimes assigns incorrect codes based on outdated information. Check your tax code on every payslip and P60. If it looks wrong, contact HMRC immediately via their online portal or by calling 0300 200 3300. An incorrect tax code could mean you are overpaying or underpaying tax throughout the year.
5. Forgetting to Report All Income Sources
All taxable income must be reported to HMRC, including: freelance or side-hustle income exceeding the £1,000 trading allowance, rental income above the £1,000 property allowance, interest from savings exceeding your Personal Savings Allowance, dividend income above the £500 Dividend Allowance, and capital gains above the £3,000 Annual Exempt Amount. The rise of the gig economy means more people have multiple income streams, all of which HMRC expects to see on your tax return.
Understanding Fiscal Drag in 2025/26
One of the most significant but least understood tax changes affecting UK taxpayers is "fiscal drag." The government has frozen income tax thresholds until 2028, while wages continue to rise with inflation. This means that each year, more of your income is pushed into higher tax bands without any explicit tax increase being announced.
According to the Office for Budget Responsibility (OBR), the frozen thresholds are expected to bring an additional 4 million people into the higher rate tax band by 2028 compared to 2021. For the average UK worker, fiscal drag could add hundreds of pounds to their annual tax bill. To illustrate: if your salary rises from £48,000 to £52,000 due to inflation, the £1,730 above the basic rate threshold (£50,270) would be taxed at 40% rather than 20%, costing you an extra £346 in tax. Understanding this hidden tax rise is essential for effective financial planning.
Workers approaching the £50,270 threshold should consider salary sacrifice arrangements for pension contributions or cycle-to-work schemes, which reduce taxable income and can keep you within the basic rate band. Similarly, those near the £100,000 threshold should explore strategies to maintain their full Personal Allowance.