Income tax: bands, rates and how your bill is worked out

Income tax is the tax you pay on your taxable income: wages, self-employed profits, most pensions, rental income and some benefits. Most people in the UK get a Personal Allowance of tax-free income, and everything above it is taxed in slices, band by band, not all at one rate¹. In England, Wales and Northern Ireland the rates on earnings, pensions and rent are 20%, 40% and 45%².

The key numbers for the 2026/27 tax year are straightforward. The first £12,570 of taxable income is covered by the Personal Allowance and taxed at 0%³. Income from £12,571 to £50,270 is taxed at the 20% basic rate, income from £50,271 to £125,140 at the 40% higher rate, and anything above £125,140 at the 45% additional rate⁴. Scotland sets its own rates and bands, which are different and are covered below.

Income tax rates and bands: 20%, 40% and 45%

Income tax in England, Wales and Northern Ireland works as a series of bands. Each slice of your taxable income is taxed at that band's rate, so moving into the higher rate does not mean all your income is taxed at 40%, only the part above £50,270.

The bands for the 2026/27 tax year are:

The same rates appear in the legislation that governs income tax: the main rates for non-savings, non-dividend income are 20%, 40% and 45%⁷. The Income Tax Act 2007 charges income up to the basic rate limit at the basic rate, and income above the higher rate limit at the additional rate⁸. These rates have been stable for some years: the higher rate has been 40% and the additional rate 45% in recent tax years⁹.

The bands can also be expressed as taxable income, that is, income after the Personal Allowance has been taken off. On that basis the basic rate covers £1 to £37,700 of taxable income, the higher rate £37,701 to £125,140, and the additional rate everything over £125,140⁵. Both ways of showing the bands describe the same thing.

Because only the top slice is taxed at the higher rates, the average rate of income tax people actually pay is much lower than their marginal rate. HMRC's statistics for 2023 to 2024 show basic rate taxpayers paid an average of 10% of their income in income tax, higher rate taxpayers an average of 21%, and additional rate taxpayers an average of 37.7%⁹.

Personal Allowance: the first £12,570 is tax-free

The Personal Allowance is the amount of income most people can receive before paying any income tax. For the 2026/27 tax year it is £12,570¹⁰. If your total income is below that, you pay no income tax at all. If it is above it, you pay tax only on the excess¹¹.

The allowance is given automatically through your tax code if you are paid through PAYE, so most employees never need to claim it. The code 1257L, the standard one, simply builds the £12,570 allowance into your monthly pay calculation.

The Personal Allowance applies to your income as a whole, not to each source separately. Wages, pensions, rental profit and self-employed profit are added together, and the allowance is set against the total. That matters if you have several small income sources: individually each may look tax-free, but together they can exceed £12,570 and become taxable.

There is one extra allowance that sits on top of the Personal Allowance for some people with savings. The starting rate for savings means some people can receive up to a further £5,000 of savings interest at a 0% rate, on top of their Personal Allowance¹². Whether you get the full £5,000 depends on your other income, and the dedicated page on how savings interest fits into your income tax explains how it works.

Which income is taxed and which is not

Income tax applies to a wide range of income. The taxable list includes money you earn from employment, profits from self-employed work including services sold through websites or apps, some state benefits, most pensions including the State Pension, company and personal pensions and retirement annuities, rental income, benefits from your job, income from a trust, and savings interest above your savings allowance¹.

Plenty of income is not taxed. You do not pay tax on the first £1,000 of income from self-employment (the trading allowance), the first £1,000 of income from property you rent out, income from tax-exempt accounts like ISAs and National Savings Certificates, dividends from company shares within your dividend allowance, premium bond or National Lottery wins, and rent from a lodger below the Rent a Room Scheme limit¹. Property income of less than £1,000 does not need to be reported to HMRC and is tax free¹². Income you earn from an ISA is not taxable¹³.

Money you inherit is not usually taxed as income at the point you receive it. You do not usually owe any tax on an inheritance when you inherit it, and any Inheritance Tax due will usually be paid before you receive the inheritance¹⁴. But income tax does apply to any profit you earn from an inheritance afterwards, for example dividends on inherited shares or rental income from an inherited property¹⁵, and selling inherited assets can raise Capital Gains Tax, covered in the guide to Capital Gains Tax.

If you come to the UK to live, work or study, you pay tax on your income, which includes wages, benefits, money you make from working for yourself and money from renting out a property¹⁶. If you live abroad, the position reverses: non-residents pay UK tax on things like pension income, rental income, savings interest and wages from UK sources, but do not usually pay UK tax on the State Pension or on interest from UK government securities, known as gilts¹⁶. The page on moving abroad or to the UK covers how residence status is decided.

Working past State Pension age does not exempt your earnings: if your overall taxable income is more than your tax-free allowances, you are taxed at the usual income tax rates on the difference¹⁷.

How your tax bill is worked out, step by step

The calculation is a band-by-band sum. The legislation puts it plainly: tax is calculated by multiplying the amount of income falling within each band by the tax rate for that band, and summing the amounts¹⁸. In practice, working out a bill follows a fixed order.

1. Add up your taxable income. Wages, pensions, self-employed profit, rent, savings interest and dividends all go into the total¹.
2. Take off your Personal Allowance. The standard allowance is £12,570¹⁰.
3. Tax your earnings, pensions and rent first. These are taxed at the 20%, 40% and 45% bands⁴.
4. Tax your savings income next. Savings income has its own rates and allowances, and is taxed after your other income¹².
5. Tax your dividends last. Dividends are taxed at their own rates, on top of everything else¹⁹.
6. Take off any reliefs and allowances you qualify for, such as Marriage Allowance²⁰.

That order is not a convention of convenience, it is set in law. Section 16 of the Income Tax Act 2007 determines the extent to which income up to the starting rate limit for savings consists of savings income, and the rate at which income tax is charged on savings and dividend income²¹. Where a person has both savings income and dividend income, they are together treated as the highest part of total income, with the dividend income treated as the highest part of all²¹. This is why a person can be a basic rate taxpayer on their salary but pay a higher rate on their dividends: the salary fills the lower bands first.

The legislation also sets out the savings rates themselves. Income tax is charged at the savings basic rate on savings income that would otherwise be charged at the basic rate, at the savings higher rate on savings income that would otherwise be charged at the higher rate, and at the savings additional rate on income that would otherwise be charged at the additional rate¹⁹.

If you want to check what you actually paid, HMRC calculates everyone's income tax between June and November each year, and the service for checking last year's tax shows the result after that²². The order of taxing income is set to change from April 2027, when the Personal Allowance will be deducted against employment, trading or pension income first¹², which is covered below under frozen thresholds and what changes next.

Earning over £100,000: how the Personal Allowance is withdrawn

Above £100,000 of income, the Personal Allowance starts to disappear. It reduces by £1 for every £2 of income above the £100,000 limit, irrespective of date of birth⁵. The result is an effective marginal rate higher than 40% in the zone where the allowance is being withdrawn, because each extra £2 of income both pays higher rate tax and takes away £1 of allowance.

The withdrawal continues until the allowance is gone entirely. Taxpayers earning more than £125,140 do not benefit from the Personal Allowance at all⁶. The Scottish government's technical factsheet states the same rule UK-wide: the Personal Allowance is withdrawn for taxpayers who earn more than £100,000 at a rate of £1 for every £2 earned over £100,000, and taxpayers earning more than £125,140 do not benefit from it²³.

The £100,000 threshold is measured after certain allowable deductions, such as pension contributions and Gift Aid donations²⁴. This is one reason higher earners are often advised to look at pension contributions: paying into a pension reduces the income measured against the threshold, and can keep some of the allowance in place. The rules behind this are set out on the page about losing your Personal Allowance above £100,000.

Scotland sets its own rates and bands

Scottish income tax is different. The rates and bands for Scottish taxpayers are set by the Scottish Parliament²⁵, a power that began with the Scotland Act 2012, which gave the Scottish Parliament the power to set a Scottish rate of income tax, and was extended by the Scotland Act 2016 to cover band thresholds and rates from 6 April 2017²⁶. The powers cover non-savings, non-dividend income: earnings, pensions and rent. On dividends and savings interest, you pay the same tax as the rest of the UK⁶.

For 2026 to 2027, the Scottish bands include a starter rate of 19% and a top rate of 48%, with an advanced rate of 45% on taxable income of £75,001 to £125,140²⁷. The Personal Allowance itself is the same £12,570 as elsewhere in the UK, taxed at 0%²⁹.

Because the bands are narrower and the top rates higher, a Scottish taxpayer on a given salary can pay more income tax than someone elsewhere in the UK on the same money, though the starter rate of 19% means lower earners can pay slightly less. The interaction is not simple, and the figures change with each Scottish Budget, so anyone comparing offers or planning a move across the border should check the current year's bands.

The UK-wide Personal Allowance taper above £100,000 applies to Scottish taxpayers too: those earning more than £100,000 see their Personal Allowance reduced by £1 for every £2 earned over £100,000²³.

Savings and dividends are taxed at their own rates

Savings interest and dividends do not simply follow the 20%, 40% and 45% bands. They have their own rates, and they are taxed after your other income, as the highest part of your income, with dividends the highest of all²¹.

For dividends, the rates for the 2025 to 2026 tax year are 8.75% at the dividend ordinary rate and 33.75% at the dividend upper rate. For 2026 to 2027 they rise to 10.75% and 35.75% respectively⁵. The dividend allowance itself, the amount of dividends taxed at 0%, is a separate limit, and the page on dividend tax covers how it has been changing.

For savings interest, the starting rate for savings can give you up to £5,000 of interest at 0% on top of your Personal Allowance¹², and there is a savings allowance above that. The savings rates are charged by band: the savings basic rate, the savings higher rate and the savings additional rate apply to savings income that would otherwise be charged at the corresponding main rates¹⁹. The page on how savings interest fits into your income tax works through the order in full, and the narrow guide to the order savings and dividends are taxed shows worked positions.

The government has announced changes here. The income tax ordering rules will change from April 2027 so that the Personal Allowance will be deducted against employment, trading or pension income first¹², and savings rates are set to rise, as the timeline below shows. The government is making no changes to the tax rates on employment and self-employment income¹².

Allowances that can lower your bill

Beyond the Personal Allowance, several allowances can reduce what you pay.

Marriage Allowance lets you transfer £1,260 of your Personal Allowance to your husband, wife or civil partner to reduce their tax²⁰. It is worth up to £252 per tax year, the period running from 6 April to 5 April the next year²⁰. To benefit, the lower earner must normally have income below their Personal Allowance, and the receiving partner must pay income tax at the basic rate, which usually means their income is between £12,571 and £50,270²⁰. In the official example, a couple with incomes of £11,500 and £20,000 saved £214, paying tax on £6,360 rather than £7,430²⁰. The full guide is at Marriage Allowance.

Married Couple's Allowance is an older, different allowance, mainly for couples where at least one partner was born before a certain date. Its income limit is £39,200⁵. You cannot get Marriage Allowance and Married Couple's Allowance at the same time²⁰, and the comparison page on Marriage Allowance or Married Couple's Allowance sets out which applies to whom.

Blind Person's Allowance is an extra allowance for people who are registered blind, which adds to the Personal Allowance and can be transferred to a spouse or civil partner if unused. The details are on the page about Blind Person's Allowance.

Tax reliefs more broadly can also reduce the tax you pay if you qualify for them, and HMRC administers the whole system¹. The pages on Gift Aid and Payroll Giving and on claiming tax relief on job expenses cover the common ones.

Frozen thresholds and what changes next

The tax-free thresholds have been frozen rather than raised with prices or wages. The UK-wide Personal Allowance has stayed at £12,570, and the higher and additional rate thresholds will remain frozen for a further three years, extending the freeze to the 2030 to 2031 tax year³⁰. A freeze means that as wages rise, more income crosses into the higher bands: the same salary buys the same tax bill in cash terms, but a larger share of it goes in tax each year. This effect, sometimes called fiscal drag, is why the number of higher rate taxpayers has grown while the thresholds have stood still.

Several changes have already been announced and legislated for:

The savings rate rise and the change to the ordering rules both take effect in April 2027¹². The freeze on thresholds runs from April 2028 to April 2031³⁰. And from April 2029, Self Assessment taxpayers who also have PAYE income will see a change in how they pay, covered next.

Pensions, second jobs and paying through PAYE or Self Assessment

Most people pay income tax through PAYE, where tax is taken from wages and pensions as they are paid, using a tax code. The code tells the employer or pension provider how much allowance to give. The page on tax codes explains how the numbers and letters work, and PAYE covers the mechanics.

Pensions. You pay income tax if your total annual income, including any pensions, adds up to more than your Personal Allowance¹³. The State Pension is paid without tax taken off; instead, your tax code is usually changed so you pay the extra tax from your other income³³. From April 2027, the maximum State Pension is expected to be higher than the standard Personal Allowance, but the government has announced that you will continue not to pay any income tax if the State Pension is your only income³³. People whose only taxable income is the State Pension, or who cannot have tax collected through PAYE, may be dealt with under Simple Assessment, where HMRC works out the bill for you¹⁰; see Simple Assessment. Tax relief on personal pension contributions works the other way round: most providers claim relief automatically for you at a fixed rate of 20%, but if you pay income tax at a higher rate than 20%, you need to claim the extra relief yourself, through HMRC or a Self Assessment return³⁴.

Second jobs. You can only use your Personal Allowance for one job, so it is given to your main one³⁵. A second job is commonly given a BR code, which means all wages from that job are taxed at the basic rate of 20%, with no Personal Allowance³⁵. This can over-collect tax if your combined income is low, and the pages on two jobs and two tax codes and on BR and 0T codes explain the fix. A K code at the other extreme means you have income or deductions higher than your tax-free Personal Allowance that are not already being taxed³⁶.

Self Assessment. Around 7 million Self Assessment taxpayers also have PAYE income because they are employed or receive a pension³⁷. At Budget 2025 the government announced that from April 2029, these taxpayers will need to pay towards their Self Assessment bill through their PAYE income where they have enough income to do so: where possible, HMRC will update the tax code, which determines how much Self Assessment tax is collected through PAYE alongside the existing tax on employment or pension income³⁷. The guides to Self Assessment, payments on account and Making Tax Digital cover the current rules and what is coming.

The High Income Child Benefit Charge is an example of a tax that can be paid either way. You can pay it through PAYE or through Self Assessment, but you must pay it through Self Assessment if you need to send a tax return for another reason, or if it is later than 31 January in the year after the tax year the charge is for³¹. If you previously completed a Self Assessment return only to pay the charge, you can choose to pay through PAYE instead by contacting HMRC by phone to leave Self Assessment³¹. The full detail is on the page about the High Income Child Benefit Charge.

If you think you have paid too much, the page on claiming a refund when you have overpaid explains how to get it back, and complaining about HMRC covers the escalation route if something has gone wrong with your record.