How it works
How UK Income Tax works in 2025/26
This income tax calculator runs your 2025/26 UK income tax exactly the way HMRC would — personal allowance, basic, higher and additional bands, the taper above £100,000 and Scottish rates when you flag the postcode. Pair it with the PAYE salary calculator, the national insurance calculator and the VAT calculator whenever you want the full picture of what lands in the bank.
Income Tax in the UK is banded and progressive — you pay each rate only on the slice of income that falls within the band. Most employees never fill in a tax return because PAYE (Pay As You Earn) handles everything through their payslip. Self-employed, landlords and high earners file a Self Assessment return each January.
The UK-wide bands below apply to England, Wales and Northern Ireland. Scotland sets its own rates and thresholds — see the Scottish section later.
| Band | Taxable income | Rate |
|---|---|---|
| Personal allowance | Up to £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 taper
Once you earn more than £100,000, your tax-free personal allowance shrinks by £1 for every £2 above the threshold. At £125,140 it vanishes entirely. This creates a notorious 60% effective marginal rate on the £100,000–£125,140 slice — you pay 40% Income Tax and lose 20% of personal allowance worth of tax-free income on top.
A common move: if you earn £110,000, making a £10,000 gross pension contribution brings you back under £100,000 and restores the full allowance — a remarkable effective rate of saving.
Worked examples
£35,000 a year (basic-rate only)
Taxable income = 35,000 − 12,570 = £22,430.
All in the basic-rate band × 20% = £4,486 Income Tax.
Effective tax rate: 12.8% of gross.
£65,000 a year (crosses into higher-rate)
Personal allowance 12,570 at 0% = £0.
Basic-rate 50,270 − 12,570 = 37,700 × 20% = £7,540.
Higher-rate 65,000 − 50,270 = 14,730 × 40% = £5,892.
Total Income Tax = £13,432 — 20.7% of gross.
£120,000 a year (inside the taper trap)
Reduced personal allowance: 12,570 − (120,000 − 100,000)/2 = 12,570 − 10,000 = £2,570.
Basic-rate: 50,270 − 2,570 = 47,700 × 20% = £9,540.
Higher-rate: 120,000 − 50,270 = 69,730 × 40% = £27,892.
Total = £37,432 — 31.2% effective rate.
Scotland: different rates, different thresholds
Scottish Income Tax uses five bands for 2025/26 (starter, basic, intermediate, higher, advanced, top). The personal allowance remains UK-wide.
| Band | Scottish taxable income | Rate |
|---|---|---|
| Starter | £12,571 – £14,876 | 19% |
| Basic | £14,877 – £26,561 | 20% |
| Intermediate | £26,562 – £43,662 | 21% |
| Higher | £43,663 – £75,000 | 42% |
| Advanced | £75,001 – £125,140 | 45% |
| Top | Above £125,140 | 48% |
What counts as taxable income
- Employment income — salary, bonuses, benefits-in-kind, tips.
- Self-employed profit — turnover minus allowable expenses.
- Rental income — after allowable expenses, with the property allowance or £1,000 trading allowance available.
- Pension income — state pension, workplace pension, personal pension drawdown (25% lump sum is tax-free).
- Interest — above the Personal Savings Allowance (£1,000 basic, £500 higher, £0 additional rate).
- Dividends — above the £500 Dividend Allowance, taxed at 8.75%/33.75%/39.35% for the three bands.
Reliefs, allowances and tax codes
Most people see a tax code like 1257L — it simply means a £12,570 personal allowance applied monthly or weekly. Codes ending in K (negative allowance, typically for untaxed benefits), T (review required), or BR (basic rate on all income — common for a second job) warrant a quick check.
Key non-PAYE reliefs worth knowing:
- Marriage Allowance — transfer £1,260 of unused allowance from a non-taxpayer spouse to a basic-rate earner, saving up to £252/year.
- Pension contributions — up to £60,000 or 100% of earnings a year at your marginal rate.
- Gift Aid — add-back: higher-rate donors can reclaim 25p per £1 donated via Self Assessment.
- Trading and Property allowances — £1,000 of gross side-hustle or rental income is tax-free.
Reading your tax code — every letter decoded
The tax code is a cryptic-looking string on your payslip, but every character has a purpose. Understanding yours lets you spot HMRC mistakes that cost hundreds of pounds a year.
- The number — divide by ten to see your personal allowance. 1257 means £12,570; 1000 means £10,000 (because of a benefit in kind reducing it).
- L — you get the standard personal allowance. The default for most employees.
- M and N — Marriage Allowance received (M) or given away (N). M usually adds £1,260 to your allowance.
- T — includes other calculations, often because income is close to the £100,000 taper. HMRC has flagged it for review each year.
- K — negative allowance. Your taxable benefits exceed your personal allowance, typically because of a large company-car benefit. Tax is deducted from the first pound.
- BR — every pound is taxed at basic rate (20 %). Used for a second job where the first job already uses the allowance.
- D0 / D1 — 40 % / 45 % on the whole income, used for third jobs or very high earners.
- NT — no tax deducted. Commonly seen for overseas Crown servants or ministers of religion.
- S / C prefix — Scottish / Welsh rates. You will see S1257L or C1257L depending on where you live.
- W1 / M1 / X — "week 1 / month 1" emergency basis. Your tax is recalculated from scratch each pay period rather than cumulatively. Usually temporary; check your final payslip in March.
National Insurance sits alongside Income Tax
Income Tax is only half the story for a UK worker. National Insurance (NI) is a separate tax on earnings that funds state benefits and the state pension. For 2025/26, employees pay Class 1 NI at 8 % on earnings between £12,570 and £50,270, and 2 % on everything above. Self-employed people pay Class 2 (£3.45 a week) and Class 4 (6 %/2 %).
NI bands are aligned with Income Tax for the most part, but NI has no equivalent of the personal allowance taper, no 45 % higher rate and no Marriage Allowance. That makes the combined marginal rate on a basic-rate employee 28 %, on a higher-rate employee 42 %, and a slightly terrifying 62 % between £100,000 and £125,140 (40 % Income Tax + 20 % allowance taper + 2 % NI).
Self Assessment — who, when and why
Most employees never need to file Self Assessment because PAYE collects Income Tax through their payslip. But HMRC sends a notice to file if any of the following applies in a tax year.
- You earned more than £150,000 through employment.
- You are self-employed with gross turnover above £1,000 (the trading allowance).
- You are a company director drawing dividends outside PAYE.
- You earned more than £10,000 from savings interest or dividends.
- You received more than £2,500 of untaxed rental income (or gross rent above £10,000).
- You claim Child Benefit and either partner earns above £50,000 (High Income Child Benefit Charge).
- You made a capital gain above the Annual Exempt Amount (£3,000 for individuals in 2025/26).
- You want to claim marriage allowance, pension tax relief beyond basic rate, or Gift Aid higher-rate relief.
Three deeper worked examples
The three scenarios earlier covered PAYE basics. Here are three more awkward — but very common — situations that catch employees out, complete with the numbers.
£72,000 employee with £8,000 salary-sacrifice pension
Pensionable pay = 72,000 − 8,000 = £64,000. Personal allowance £12,570. Basic-rate slice 50,270 − 12,570 = 37,700 × 20 % = £7,540. Higher-rate slice 64,000 − 50,270 = 13,730 × 40 % = £5,492. Total Income Tax = £13,032, saving about £3,200 compared to paying the pension out of net salary.
£118,000 employee with Child Benefit for two kids
Taper reduces allowance to 12,570 − 9,000 = £3,570. Income Tax: basic 46,700 × 20 % = £9,340; higher 67,730 × 40 % = £27,092. Total = £36,432. On top, High Income Child Benefit Charge removes £2,075 of benefit (1 % per £200 of income between £60k and £80k — by 2025/26 the ceiling is £80k, so full clawback).
£48,000 landlord with £9,000 rental profit
Combined income £57,000 crosses into the higher rate band. Tax on employment alone: (50,270 − 12,570) × 20 % = £7,540. Tax on rental: the first (50,270 − 48,000) = £2,270 at 20 % = £454; the remaining £6,730 at 40 % = £2,692. Rental tax = £3,146. Total Income Tax = £10,686. This is the landlord's classic tax cliff, because cheaper mortgage interest no longer fully deducts.
Key tax-year dates you should not miss
UK tax deadlines are tight and penalty-heavy. Put these in your phone calendar today.
| Date | Event | Who it affects |
|---|---|---|
| 6 April 2025 | Start of 2025/26 tax year | Everyone — new allowances and bands apply |
| 31 July 2025 | Second payment on account due for 2024/25 | Self-employed, landlords |
| 5 October 2025 | Register for Self Assessment for 2024/25 | New self-employed, new landlords |
| 31 October 2025 | Paper Self Assessment deadline for 2024/25 | Anyone filing on paper |
| 30 December 2025 | Deadline to have SA tax collected via PAYE in 2026/27 | PAYE employees with small bills under £3,000 |
| 31 January 2026 | Online Self Assessment + payment deadline | All Self Assessment filers |
| 5 April 2026 | End of tax year — ISA and pension allowances reset | Anyone with savings or pensions |
Reliefs and allowances most PAYE workers miss
Even salaried employees can claim reliefs that quietly reduce their tax bill. HMRC will not chase you — you must apply.
Work-from-home tax relief
If your employer requires you to work from home (not just prefer it), you can claim £6 a week as tax relief — £312/year. At basic rate that's £62.40 back, at higher rate £124.80. Apply via the P87 form or the online HMRC service.
Professional subscriptions
Membership fees for approved professional bodies — the ICAEW, GMC, NMC, Law Society, RIBA, and hundreds more — are tax-deductible. Check the full HMRC list 3 (approved professional organisations) before claiming.
Uniform and tool allowances
Nurses, mechanics, police officers, and many trades can claim a flat-rate expense for washing uniforms or buying small tools. The amounts are modest (£60–£140/year typically) but they stack up across a career and can be backdated four tax years.
Marriage Allowance
If one spouse earns under the Personal Allowance and the other is a basic-rate taxpayer, transfer £1,260 of allowance and save up to £252/year. It's the simplest five-minute tax win in the UK system.
Pension contribution relief for higher-rate taxpayers
Personal pension contributions already get 20 % relief automatically at source. Higher-rate (40 %) and additional-rate (45 %) taxpayers must claim the extra 20 % or 25 % back via Self Assessment. Skipping this step leaves thousands of pounds on the table over a career.
Capital Gains, dividends, and savings — the other tax streams
Income Tax is only one of five main taxes on personal finances. A quick map helps you avoid surprises.
- Capital Gains Tax (CGT) — on profit from selling assets. Annual exempt amount £3,000 in 2025/26. Residential property gains 18 %/24 %, other assets 10 %/20 %.
- Dividend tax — first £500 covered by the Dividend Allowance, then 8.75 %/33.75 %/39.35 % depending on your tax band.
- Savings interest — Personal Savings Allowance £1,000 (basic), £500 (higher), £0 (additional). Above that, interest is taxed at your marginal rate.
- Inheritance Tax (IHT) — typically 40 % on estates above the £325,000 nil-rate band, with reliefs for spouses and main homes passing to direct descendants.
- Stamp Duty Land Tax (SDLT) — paid by the buyer on property purchases above certain thresholds.
