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Income Tax Rates and Allowances

What You Need to Know About Income Tax

Income tax rates decide how much tax UK individuals pay on their earnings, including wages, pensions, profits from self-employment, and some savings and investments.

The UK uses different income tax bands and rates depending on how much you earn and where you live (as rates can differ in Scotland).

This guide explains how income tax rates work, what bands apply, and how to work out what you owe so you can plan ahead, stay compliant, and make the most of any allowances or reliefs available.

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What Are Income Tax Rates?

Income tax rates set out how much tax you pay on the money you earn above your personal allowance each tax year. The UK uses a tiered system with different tax bands so the more you earn, the higher the rate you pay on the portion above each threshold.

Most people pay income tax on wages, pensions, self-employed profits, rental income, and some savings or dividends. The rates and bands can vary depending on whether you live in England, Wales, Northern Ireland, or Scotland.

Understanding which income tax rates apply to you — and how to calculate your tax bill helps you budget properly and make sure you’re paying the right amount to HMRC.

Getting Started with Income Tax Rates and Allowances

Before you work out how much income tax you’ll pay, it’s important to understand the different income tax rates and how your personal allowance works. Your personal allowance is the amount you can earn tax-free each tax year before income tax rates apply.

The UK has several income tax bands basic, higher, and additional each with its own rate and threshold. Knowing which band your income falls into, and what reliefs or allowances you’re entitled to, helps you calculate your tax bill accurately and make the most of any tax-free income you qualify for.

Income tax

Rates

Income tax applies to the amount of income after deduction of personal allowances.

Income is taxed in a specific order with savings and dividend income taxed last.

Dividend income and savings income falling within the dividend and savings allowances still form part of total income of an individual.

The starting rate band is only applicable to savings income. The 0% rate is not available if the taxable amount of non-savings income exceeds the starting rate band.

The Scottish Parliament set the rates of income tax and the limits at which these rates apply for Scottish residents on non-savings and non-dividend income.

Income tax is devolved to Wales on non-savings and non-dividend income. Welsh resident taxpayers continue to pay the same overall income tax rates using the UK rates and bands. The total rate of income tax = UK income tax + Welsh rate of income tax. Savings income and dividend income are taxed using UK tax rates and bands.

2025/26:

Type Band of taxable income (£) Rate (%) Rate if dividends (%)
Basic rate 0 - 37,700 20 8.75
Higher rate 37,701 - 125,140 40 33.75
Additional rate Over 125,140 45 39.35

For Scottish residents the following bands apply for non-savings and non-dividend income:

Type Band of taxable income (£) Rate (%)
Starter rate 0 - 2,827 19
Basic rate 2,828 - 14,921 20
Intermediate rate 14,992 - 31,092 21
Higher rate 31,093 - 62,430 42
Advanced rate 62,431 - 125,140 45
Top rate Over 125,140 48

For Welsh residents the following bands apply for non-savings and non-dividend income:

Band of taxable income (£) UK Rate (%) Welsh Rate (%) Overall Rate (%)
0 - 37,700 10 10 20
37,701 - 125,140 30 10 40
Over 125,140 35 10 45

There are special rates for savings and dividend income falling into above bands of taxable income.

Savings Allowance:

Band of taxpayer Amount (£) Rate (%)
Basic rate 1,000 0
Higher rate 500 0
Additional rate 0 N/a

Dividend Allowance:

Band of taxpayer Amount (£) Rate (%)
All 500 0

2024/25:

Type Band of taxable income (£) Rate (%) Rate if dividends (%)
Basic rate 0 - 37,700 20 8.75
Higher rate 37,701 - 125,140 40 33.75
Additional rate Over 125,140 45 39.35

For Scottish residents the following bands apply for non-savings and non-dividend income:

Type Band of taxable income (£) Rate (%)
Starter rate 0 - 2,306 19
Basic rate 2,307 - 13,991 20
Intermediate rate 13,992 - 31,092 21
Higher rate 31,093 - 62,430 42
Advanced rate 62,431 - 125,140 45
Top rate Over 125,140 48

For Welsh residents the following bands apply for non-savings and non-dividend income:

Band of taxable income (£) UK Rate (%) Welsh Rate (%) Overall Rate (%)
0 - 37,700 10 10 20
37,701 - 125,140 30 10 40
Over 125,140 35 10 45

There are special rates for savings and dividend income falling into above bands of taxable income.

Savings Allowance:

Band of taxpayer Amount (£) Rate (%)
Basic rate 1,000 0
Higher rate 500 0
Additional rate 0 N/a

Dividend Allowance:

Band of taxpayer Amount (£) Rate (%)
All 500 0

Allowances

A personal allowance gives an individual an annual amount of income free from income tax.

Income above the personal allowances is subject to income tax.

The personal allowance will be reduced if an individual's 'adjusted net income' is above £100,000. The allowance is reduced by £1 for every £2 of income above £100,000.

An individual born before 6 April 1935 may be entitled to a married couple's allowance but this is reduced if 'adjusted net income' is above the married couple's allowance income limit (see table below).

Marriage allowance - 10% of the personal allowance may be transferable between certain spouses where neither pays tax above the basic rate. The Marriage allowance is not available to couples entitled to the Married Couple's allowance.

Personal Allowance

Allowances 2025/26 (£) 2024/25 (£)
Personal allowance 12,570 12,570
Marriage allowance 1,260 1,260

Blind person's allowance

£3,130 (2024/25: £3,070)

Married couple's allowance

Either partner born before 6th April 1935.

Reduction in tax bill 2025/26 (£) 2024/25 (£)
Maximum 1,127 1,108
Minimum 436 428
Age allowance income limit 1 37,700 37,000

Note...

  1. Reduce married couples allowance by £1 for every £2 of 'adjusted net income' above this limit.

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Accounting Wise - Tax Rates and Allowances - Who Pays Income Tax

Who Pays Income Tax?

Most people living and working in the UK pay income tax on their earnings. This includes employees, self-employed people, company directors, landlords, and pensioners with income above the personal allowance.

You usually pay income tax on:

  • Wages and salaries from employment
  • Profits from self-employment
  • Pensions and retirement income
  • Rental income from property you let out
  • Interest on savings (above savings allowances)
  • Dividends (above dividend allowances)

Some types of income like certain benefits or income within your personal allowance may be tax-free.

Understanding who pays income tax and which rates apply helps you stay on top of your tax bill and avoid any unexpected surprises.

How to Pay Income Tax

How you pay income tax depends on how you earn your income.

Employees and Pensioners

If you’re employed or receive a pension, your income tax is usually deducted automatically through the PAYE (Pay As You Earn) system. Your employer or pension provider uses your tax code to work out how much to take off each pay period and sends it directly to HMRC.

Self-Employed and Landlords

If you’re self-employed, run a business, or earn untaxed income (like rental profits), you’ll pay income tax through Self-Assessment. You’ll need to register with HMRC, complete a Self-Assessment tax return each year, and pay any tax due by the deadlines.

What You’ll Need

Make sure you keep records of all your income, allowable expenses, and any reliefs or allowances you claim. Paying the right amount and filing on time helps you avoid penalties and interest.

Accounting Wise - Tax Rates and Allowances - How to Pay Income Tax

Income Tax Rates and Allowances FAQs

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The UK has a basic rate, higher rate, and additional rate of income tax, each applied to different portions of your income above the personal allowance. Rates and bands vary if you live in Scotland.

Most employees, self-employed people, landlords, pensioners, and anyone with taxable income above the personal allowance must pay income tax.

The personal allowance is the amount you can earn each tax year before paying income tax. It can vary depending on your income and personal circumstances.

Your income tax rate depends on how much taxable income you have after your personal allowance and which band it falls into. Higher earnings mean higher rates on the portion above each threshold.

You may pay income tax on interest from savings and dividends if they go over your tax-free allowances for savings or dividend income.

Most employees and pensioners pay income tax through PAYE. Self-employed people, landlords, and those with other untaxed income pay through Self Assessment.

You may pay income tax on interest from savings and dividends if they go over your tax-free allowances for savings or dividend income.

Yes using your full personal allowance, marriage allowance (if eligible), pension contributions, and other reliefs can help reduce the income tax you pay.

HMRC may charge interest and penalties if you underpay income tax or file your tax return late. It’s important to check your tax code and keep accurate records.

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