How Does UK Income Tax Work? Rates, Allowances and Thresholds Explained
Published 5th of May 2017·Updated 16 April 2026
Reviewed by: Reviewed for accuracy April 2026
UK income tax is charged on your earnings above a tax-free threshold called the personal allowance. For the 2025/26 tax year, the personal allowance is £12,570. You pay 20 per cent on earnings between £12,571 and £50,270, then 40 per cent above that, and 45 per cent on earnings above £125,140. If you earn less than £12,570, you pay no income tax at all.
Short Summary
The personal allowance for 2025/26 is £12,570. It has been frozen at this level since 2021 and is set to remain frozen until at least 2028, meaning more people are being pulled into higher tax bands as wages rise.
Income tax rates are 20% (basic rate), 40% (higher rate) and 45% (additional rate). These apply to earnings above the personal allowance in England, Wales and Northern Ireland. Scotland has its own tax bands with different rates.
If you earn over £100,000, your personal allowance is reduced by £1 for every £2 above that threshold. At £125,140 your personal allowance is zero, creating an effective 60 per cent marginal tax rate on income between £100,000 and £125,140.
Pension contributions, Gift Aid donations and certain other payments can reduce your taxable income, which may bring you into a lower tax band.
What is the personal allowance?
The personal allowance is the amount you can earn each year before paying income tax. For 2025/26 it is £12,570 for most people. You receive this allowance regardless of your age (the age-related increases that once applied to over-65s were phased out in 2016).
Your personal allowance can be increased if you qualify for the Marriage Allowance or the Blind Person's Allowance, and reduced if your income exceeds £100,000. HMRC adjusts your tax code to reflect your personal allowance, which your employer uses to calculate how much tax to deduct through PAYE.
What are the UK income tax rates for 2025/26?
The table below shows the income tax bands for England, Wales and Northern Ireland. Scotland has separate bands set by the Scottish Parliament.
| Band | Taxable income | Tax rate |
|---|---|---|
| Personal allowance | Up to £12,570 | 0% |
| Basic rate | £12,571 to £50,270 | 20% |
| Higher rate | £50,271 to £125,140 | 40% |
| Additional rate | Over £125,140 | 45% |
You do not pay the same rate on all your income. Each band applies only to the portion of income that falls within it. Someone earning £60,000 pays 0 per cent on the first £12,570, 20 per cent on the next £37,700, and 40 per cent only on the remaining £9,730.
How does income tax work in Scotland?
Scotland has five income tax bands, set annually by the Scottish Parliament. For 2025/26, Scottish taxpayers pay a starter rate of 19 per cent, a basic rate of 20 per cent, an intermediate rate of 21 per cent, a higher rate of 42 per cent, and a top rate of 48 per cent. The personal allowance of £12,570 still applies. The Scottish rates generally mean higher earners pay more in Scotland than elsewhere in the UK.
What is the Marriage Allowance?
The Marriage Allowance lets one spouse transfer up to £1,260 of their personal allowance to the other, provided the recipient pays basic rate tax and the transferring partner earns less than £12,570. This reduces the higher-earning partner's tax bill by up to £252 per year. You can claim the Marriage Allowance at gov.uk and can backdate a claim for up to four years, potentially receiving over £1,000 in a single back-payment.
How does income over £100,000 affect your personal allowance?
If your income exceeds £100,000, HMRC reduces your personal allowance by £1 for every £2 you earn above that threshold. At £125,140 your personal allowance is reduced to zero. This creates an effective marginal tax rate of 60 per cent on income between £100,000 and £125,140, because each additional £1 of income is taxed at 40 per cent and simultaneously removes 50p of tax-free allowance (which is also taxed at 40 per cent).
The most effective way to reduce this liability is to increase pension contributions. Contributions to a registered pension scheme reduce your adjusted net income for tax purposes, which can restore your personal allowance.
What reduces your taxable income?
Several things can legitimately reduce the amount of income on which you pay tax.
- Pension contributions: contributions to a registered pension scheme receive tax relief and reduce your adjusted net income
- Gift Aid donations: if you donate to charity under Gift Aid, HMRC treats the donation as if you had paid it from net income, extending basic-rate relief to the donor and allowing higher-rate taxpayers to claim additional relief through self-assessment
- Trading losses: self-employed people can offset trading losses against other income
- Professional subscriptions: fees to professional bodies approved by HMRC are deductible if they are necessary for your work
How is income tax collected?
For most employees, tax is deducted at source through PAYE (Pay As You Earn). Your employer uses your tax code to calculate the correct deduction each pay period. If your tax affairs are straightforward, you will never need to file a return.
Self-employed people and those with more complex income (rental income, dividends above the £500 dividend allowance, savings interest above the personal savings allowance) must file a Self Assessment tax return by 31 January following the end of the tax year. Penalties for late filing start at £100 and increase the longer the return remains outstanding.
FAQ
Do I pay income tax on my State Pension?
Yes. The State Pension counts as taxable income, though HMRC collects the tax through your PAYE code on any other employment or pension income rather than deducting it at source from the State Pension itself. If the State Pension is your only income and it is below the personal allowance, you pay no tax.
How do I know if I am on the right tax code?
Your tax code appears on your payslip, P60 or P45. The most common code is 1257L, which corresponds to the standard personal allowance of £12,570. If your code looks unusual (for example BR, D0 or a number much lower than 1257), contact HMRC on 0300 200 3300 to check whether it is correct. An incorrect code can result in under or overpayment of tax.
Can I get a tax refund if I have overpaid?
Yes. If you have overpaid income tax through PAYE, HMRC will usually issue a refund automatically at the end of the tax year. If you believe you have overpaid and have not received a refund, you can claim one through your Personal Tax Account at gov.uk or by writing to HMRC.
Do pensioners pay income tax?
Yes, if their total income exceeds the personal allowance of £12,570. Income from a private pension, occupational pension, annuity or the State Pension all count as taxable income. There are no special income tax rates for pensioners; the same bands apply as for working-age people.
What is National Insurance and is it different from income tax?
National Insurance (NI) is a separate contribution collected alongside income tax. Employees pay Class 1 NI contributions on earnings above £12,570 at a rate of 8 per cent (2025/26). Employers also pay NI on the earnings of their staff. NI contributions fund the State Pension and certain benefits. Once you reach State Pension age, you stop paying NI contributions even if you continue working.
What happens if I have more than one job? Each job has a separate tax code. PAYE will apply your personal allowance to your main job and tax your second job from the first pound (usually on a BR code at 20 per cent). If this results in overpayment across both jobs combined, you can reclaim the excess through a Self Assessment return or by contacting HMRC.