Last updated: 20 February 2026 2025/26 Tax YearHMRC Verified
UK income tax is charged at different rates depending on how much you earn. The system uses a banded approach — you only pay the higher rate on income that falls within that band, not on all your income. Understanding which band you fall into, and how to legally reduce it, can save thousands of pounds each year.
Income Tax Bands 2025/26 by Region
| Band | Taxable Income | Tax Rate | Tax on Band |
|---|---|---|---|
| Personal Allowance | £0 – £12,570 | 0% | £0 |
| Basic Rate | £12,571 – £50,270 | 20% | Up to £7,540 |
| Higher Rate | £50,271 – £125,140 | 40% | Up to £29,948 |
| Additional Rate | Over £125,140 | 45% | 45% on all above |
Personal Allowance taper: Reduced by £1 for every £2 earned above £100,000. Fully withdrawn at £125,140, creating an effective 60% marginal rate between £100,000 and £125,140.
| Band | Taxable Income | Tax Rate |
|---|---|---|
| Personal Allowance | £0 – £12,570 | 0% |
| Starter Rate | £12,571 – £15,397 | 19% |
| Basic Rate | £15,398 – £27,491 | 20% |
| Intermediate Rate | £27,492 – £43,662 | 21% |
| Higher Rate | £43,663 – £75,000 | 42% |
| Advanced Rate | £75,001 – £125,140 | 45% |
| Top Rate | Over £125,140 | 48% |
Scotland applies these rates to non-savings, non-dividend income. Savings and dividends are taxed at UK-wide rates, with the applicable band determined by where total income sits on the UK equivalent bands.
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National Insurance Contributions 2025/26
National Insurance is separate from income tax but adds significantly to your overall tax burden. Here are the rates for 2025/26:
| Class | Who Pays | Rate | Threshold |
|---|---|---|---|
| Class 1 (Employee) | Employees | 8% | £12,570 – £50,270 |
| Class 1 (Employee upper) | Employees | 2% | Above £50,270 |
| Class 1 (Employer) | Employers | 15% | Above £5,000 (from Apr 2025) |
| Class 2 (Self-employed) | Self-employed | £3.45/week | If profits over £12,570 |
| Class 4 (Self-employed) | Self-employed | 9% | £12,570 – £50,270 |
| Class 4 (Self-employed upper) | Self-employed | 2% | Above £50,270 |
How Tax Bands Apply to Different Income Types
Salary and Employment Income
Employment income uses your Personal Allowance first, then falls through the bands in order. PAYE (Pay As You Earn) collects income tax and employee NI automatically. Your tax code determines how much tax is deducted. Code 1257L means you have the standard £12,570 Personal Allowance.
Savings Interest
Savings income sits on top of non-savings income in your tax calculation. After your Personal Allowance, the savings starter rate (0% on up to £5,000) may apply if your non-savings income is below £17,570. Then the Personal Savings Allowance of £1,000 (basic rate) or £500 (higher rate) applies. Above these allowances, savings interest is taxed at your marginal band rate.
Dividends
Dividends sit highest in the tax order. They benefit from a £500 Dividend Allowance, after which they are taxed at dividend rates: 8.75% (basic rate), 33.75% (higher rate), 39.35% (additional rate). Dividend income uses up your remaining tax bands, potentially pushing other income into higher bands.
Rental Income
Rental income (after allowable expenses) is added to other non-savings income and taxed at your marginal band. There is no separate rate for rental income. Higher earners paying 40% on rental profit should consider whether incorporation makes sense for their circumstances.
The 60% Trap: Personal Allowance Taper
One of the most significant quirks of the UK tax system is the effective 60% tax rate on income between £100,000 and £125,140. For every £2 of income above £100,000, you lose £1 of your Personal Allowance. This means £2 of extra income results in £1 being taxed at 40% as the previously tax-free allowance becomes taxable.
The combined effect is 40% on the income itself + 40% × £1 of lost allowance = 60% effective marginal rate. For income in this band, making additional pension contributions (which reduce your adjusted net income) can restore the Personal Allowance and is often the most tax-efficient strategy available.
Fiscal Drag: Why More People Pay Higher Rates
The Personal Allowance and Basic Rate threshold have been frozen at £12,570 and £50,270 respectively since 2021/22, and are planned to remain frozen until April 2028. Meanwhile, average wages have risen with inflation. This means:
- Workers who were below the Personal Allowance in 2021 may now pay basic rate tax
- Workers who were basic rate taxpayers may have been pushed into the higher rate band
- Each year, more taxpayers pay a higher rate without any explicit rate increase
- HMRC estimates this will raise tens of billions in additional revenue by 2028
How to Reduce Your Income Tax Band
Salary Sacrifice Pension Contributions
The most powerful tool for most employed workers. Salary sacrifice means you give up gross salary in exchange for employer pension contributions. This reduces your taxable income pound-for-pound, saving both income tax and employee NI. For a higher rate taxpayer, salary sacrificing £10,000 saves £4,000 in income tax plus £200 in NI.
Making Pension Contributions Directly
Even without salary sacrifice, personal pension contributions attract tax relief. Basic rate relief is added automatically. Higher and additional rate taxpayers claim extra relief through self-assessment. Pension contributions also reduce your "adjusted net income," which determines your Personal Allowance, child benefit entitlement, and Student Loan repayments.
Gift Aid Donations
Charitable donations through Gift Aid extend the basic rate tax band. If you donate £1,000 to charity, the grossed-up donation is £1,250. This means £1,250 of your income is taxed at 20% rather than 40%, saving £250 if you are a higher rate taxpayer.
Other Salary Sacrifice Schemes
Cycle to Work, electric vehicle leasing, childcare vouchers (legacy scheme), and workplace parking all reduce taxable pay when structured as salary sacrifice. These save income tax and NI on the sacrificed amount.
Enterprise Investment Scheme (EIS) and SEIS
Qualifying investments under EIS provide 30% income tax relief on up to £1 million invested, and SEIS offers 50% relief on up to £200,000. These are higher-risk investments but offer powerful tax relief for suitable investors.
Scotland vs England: Who Pays More?
Scottish taxpayers earning between £27,492 and £43,662 pay 21% (intermediate rate) rather than 20%, and those earning between £43,663 and £50,270 pay 42% rather than 20%. This means a Scottish earner on £50,000 pays significantly more income tax than an equivalent English earner. However, Scotland benefits from lower Council Tax in some areas and free prescriptions, partially offsetting these differences.
Frequently Asked Questions
What are the UK income tax bands for 2025/26?
For England, Wales and Northern Ireland: 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%). The Personal Allowance tapers to zero between £100,000 and £125,140, creating an effective 60% marginal rate in this range.
How is Scotland's income tax different?
Scotland has six income tax bands instead of three. Rates run from 19% (starter rate on £12,571–£15,397), 20% (basic), 21% (intermediate on £27,492–£43,662), 42% (higher on £43,663–£75,000), 45% (advanced on £75,001–£125,140) to 48% (top rate above £125,140). Scottish taxpayers earning between £43,663 and £50,270 pay 42% rather than England's 20%, a significant difference.
What are the National Insurance rates for employees in 2025/26?
Employees pay Class 1 NI at 8% on earnings between £12,570 and £50,270 per year, and 2% on earnings above £50,270. The employee rate was reduced from 10% to 8% in April 2024. Employers pay 15% on employee earnings above £5,000 from April 2025, having been reduced from a £9,100 threshold — a significant additional cost for businesses employing part-time workers.
What happens to my personal allowance if I earn over £100,000?
If your income exceeds £100,000, your Personal Allowance is reduced by £1 for every £2 of income above £100,000. At £125,140, the full £12,570 allowance is lost. This creates an effective marginal tax rate of 60% on income between £100,000 and £125,140, making pension contributions and salary sacrifice particularly valuable at this level. For every £1,000 extra earned in this band, you keep only £400.
What is fiscal drag and how does it affect UK taxpayers?
Fiscal drag occurs when tax thresholds are frozen while wages rise with inflation. More workers are pushed into higher tax bands without any change in tax rates. The UK Personal Allowance and higher rate threshold have been frozen since 2021/22. By 2028, HMRC estimates millions of additional workers will have been pushed into the higher rate band — essentially a stealth tax rise that requires no legislative change.
How can I reduce my income tax band?
Key strategies include: making pension contributions via salary sacrifice or direct contribution (reduces adjusted net income), charitable donations via Gift Aid (extends basic rate band), claiming allowable business expenses if self-employed, and using salary sacrifice schemes (cycle to work, EV leasing). Higher earners near £100,000 should prioritise pension contributions to restore their Personal Allowance at the effective 60% marginal rate.
Do dividends and savings interest use my income tax bands?
Yes, dividends and savings interest are stacked on top of other income. Savings interest uses any remaining Personal Allowance, then benefits from the savings starter rate and PSA before being taxed at your marginal band rate. Dividends benefit from the £500 Dividend Allowance, then are taxed at 8.75% (basic), 33.75% (higher), or 39.35% (additional) depending on which band they fall in. They can push other income into higher bands.