Income Tax is the UK’s largest source of government revenue and the most significant tax most people pay. Whether you are employed, self-employed, or living off pension income, understanding how Income Tax works helps you keep more of your money — legally.
This guide covers the current rates and bands, how tax is collected, and practical ways to reduce your bill.
Income Tax Rates and Bands for 2025/26
Income Tax in England, Wales, and Northern Ireland is charged at the following rates:
| Band | Taxable income | 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% |
These bands apply to taxable income — your total income minus your personal allowance and any tax reliefs.
Income Tax is calculated progressively. You pay each rate only on the portion of income that falls within that band — not on your entire salary. For instance, someone earning £60,000 pays 0% on the first £12,570, 20% on the next £37,700, and 40% on the remaining £9,730.
Personal Allowance Taper
If your income exceeds £100,000, your personal allowance is reduced by £1 for every £2 earned above this threshold. This means the personal allowance is entirely eliminated once income reaches £125,140.
This creates a hidden 60% marginal tax rate between £100,000 and £125,140 — you pay 40% Income Tax plus effectively lose an extra 20% through the taper. Making pension contributions to bring your adjusted net income below £100,000 is one of the most widely used strategies to avoid this trap.
National Insurance
National Insurance Contributions (NICs) are charged alongside Income Tax and fund the state pension and certain benefits. For employees in 2025/26:
| Class 1 NICs (Employee) | Earnings | Rate |
|---|---|---|
| Below the Primary Threshold | Up to £12,570 | 0% |
| Between Primary Threshold and Upper Earnings Limit | £12,570 to £50,270 | 8% |
| Above Upper Earnings Limit | Over £50,270 | 2% |
Employers also pay NICs at 13.8% on earnings above £5,000 (the Secondary Threshold), which is invisible on your payslip but increases the total cost of employment.
Self-employed individuals pay Class 4 NICs at 6% on profits between £12,570 and £50,270, and 2% above £50,270.
Scottish Income Tax Rates
Scotland sets its own income tax rates and bands, which differ from the rest of the UK:
| Band | Taxable income | Rate |
|---|---|---|
| Starter rate | £12,571 to £14,876 | 19% |
| Basic rate | £14,877 to £26,561 | 20% |
| Intermediate rate | £26,562 to £43,662 | 21% |
| Higher rate | £43,663 to £75,000 | 42% |
| Advanced rate | £75,001 to £125,140 | 45% |
| Top rate | Over £125,140 | 48% |
Scottish taxpayers pay more on higher earnings but slightly less at the starter-rate level. The same personal allowance of £12,570 applies throughout the UK.
Tax Codes Explained
Your tax code tells your employer how much tax-free income you are entitled to. The most common code is 1257L, which corresponds to the standard personal allowance of £12,570.
Other common codes include:
- BR — All income taxed at the basic rate (used for a second job)
- D0 — All income taxed at the higher rate
- K — Indicates you owe tax from a previous year, so your allowance is reduced
- SCottish codes — Prefixed with an S (e.g. S1257L)
If your tax code is wrong, you could be paying too much or too little tax. Check your code on your payslip and contact HMRC if it does not look right.
Marriage Allowance
If you are married or in a civil partnership, the lower earner can transfer £1,260 of their personal allowance to the higher earner — provided the higher earner is a basic-rate taxpayer. This saves up to £252 per year in Income Tax.
To qualify, the transferring partner must earn less than the personal allowance (£12,570), and the recipient must not be a higher or additional-rate taxpayer. You can backdate a claim for up to four years.
How Income Tax Is Collected
PAYE (Pay As You Earn)
Most employees have their Income Tax and NICs deducted automatically from their salary by their employer through the PAYE system. Your employer uses your tax code to calculate the correct deductions each pay period.
Self Assessment
If you are self-employed, have significant untaxed income, or earn above £150,000, you must file a Self Assessment tax return. The key deadlines are:
- 5 October — Register for Self Assessment if it is your first time
- 31 October — Paper tax return deadline
- 31 January — Online tax return and payment deadline
Use our income percentile calculator to see where your earnings sit compared to the UK population.
Ways to Reduce Your Tax Bill
There are several legal strategies to lower your Income Tax:
Pension Contributions
Contributions to a workplace or personal pension receive Income Tax relief. Basic-rate taxpayers get 20% added automatically; higher-rate taxpayers can claim a further 20% through Self Assessment. Salary sacrifice pension arrangements also save on NICs for both employee and employer.
Salary Sacrifice
Some employers offer salary sacrifice schemes for pensions, cycle-to-work, childcare vouchers, or electric car leasing. You give up a portion of your salary in exchange for a non-cash benefit, reducing your taxable income and National Insurance liability.
Use Your ISA Allowance
While ISA contributions are made from after-tax income, all returns within an ISA are tax-free. This prevents interest and dividends from pushing you into a higher tax bracket or reducing your personal allowance.
Charitable Giving
Donations through Gift Aid allow the charity to reclaim 25% of your donation and higher-rate taxpayers can claim extra relief through Self Assessment. Giving through payroll giving is even more efficient as donations are taken before tax.
Trading and Property Allowances
You can earn up to £1,000 each from trading income (e.g. freelancing) and property income (e.g. renting a room under Rent a Room) tax-free under the trading and property allowances. These are separate from your personal allowance.
For more strategies to reduce tax on your investments, see our guide to Capital Gains Tax.