UK Income Tax Rates 2025/26: A Guide to Your Allowances & How to Maximise Them
Your complete guide to UK income tax rates for 2025/26. Compare the bands for England, Scotland, and Wales, understand your allowances, and learn how to save tax.
As the new tax year is underway, understanding the landscape of UK Income Tax is crucial for managing your money effectively. For the 2025/26 tax year, much of the UK sees a period of stability with frozen allowances, but significant changes in Scotland mean many taxpayers there will face a different reality. Knowing which tax bands you fall into and how to use your allowances is the first step to smart financial planning.
At Plouta, our mission is to provide you with clear, actionable knowledge to help you protect your money, save efficiently, and build a secure financial future. This guide will break down the income tax rates and bands for England, Northern Ireland, Wales, and Scotland for the 2025/26 tax year, compare them to 2024/25, and show you how to use tax-efficient schemes to reduce your bill.
What you will learn in this guide: ⤵
Key UK-Wide Allowances: The main tax-free allowances for 2025/26.
The 60% Tax Trap: Understanding the Personal Allowance taper for high earners.
Tax Bands Compared: A clear breakdown of the rates for England, NI, Wales, and Scotland.
Tax on Savings & Dividends: How this income is treated differently.
Tax-Efficient Strategies: How pensions and ISAs can help you reduce your tax liability.
Key UK-Wide Tax Allowances for 2025/26
For most of the UK, the core allowances remain frozen. This is a policy often referred to as "fiscal drag," where wage growth can push more people into higher tax brackets even if the rates don't change.
| Allowance | 2025/26 | 2024/25 | Change |
|---|---|---|---|
| Personal Allowance | £12,570 | £12,570 | No Change |
| Dividend Allowance | £500 | £500 | No Change |
| Personal Savings Allowance | £1,000 (Basic-rate) £500 (Higher-rate) |
£1,000 (Basic-rate) £500 (Higher-rate) |
No Change |
| Capital Gains Tax Allowance | £3,000 | £3,000 | No Change |
| Marriage Allowance | £1,260 | £1,260 | No Change |
The £100k "60% Tax Trap": Understanding the Personal Allowance Taper
This is a critical point that affects high earners. If your "adjusted net income" goes over £100,000, your £12,570 Personal Allowance is reduced by £1 for every £2 your income is over this threshold.
This creates a brutal effective tax rate on the band of income between £100,000 and £125,140. For every £100 you earn in this bracket:
You pay 40% Income Tax (£40).
You also lose £50 of your tax-free Personal Allowance.
Losing £50 of your allowance means that £50 is now also taxed at 40%, costing you an extra £20.
The total tax on that £100 of earnings becomes £40 + £20 = £60.
This results in an effective 60% tax rate on this portion of your income. Your Personal Allowance is completely lost once your income reaches £125,140. Strategic pension contributions are a key way to manage this (more on this later).
Estimate your total pension pot at retirement and your yearly retirement income.
Income Tax Bands in England, Wales, and Northern Ireland (2025/26)
For taxpayers in England, Wales, and Northern Ireland, the income tax rates and bands for non-savings, non-dividend income remain unchanged.
| Tax 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% |
Income Tax Bands in Scotland (2025/26)
Scotland uses its own distinct set of income tax rates and bands, which have seen further divergence for the 2025/26 tax year.
| Tax Band | Taxable Income (2025/26) | Tax Rate |
|---|---|---|
| Personal Allowance | Up to £12,570 | 0% |
| Starter Rate | £12,571 – £15,397 | 19% |
| Basic Rate | £15,398 – £27,491 | 20% |
| Intermediate Rate | £27,492 – £43,662 | 21% |
| Higher Rate | £43,663 – £75,000 | 42% |
| Advanced Rate | £75,001 – £125,140 | 45% |
| Top Rate | Over £125,140 | 48% |
How Tax on Savings and Dividends Works
It's important to remember that savings interest and dividend income have their own separate allowances and tax rates, which are the same across the UK.
1. Tax on Savings Interest Thanks to the Personal Savings Allowance (PSA), most people don't pay tax on interest from their savings.
Basic-rate (20%) taxpayers: Can earn £1,000 in interest tax-free.
Higher-rate (40%) taxpayers: Can earn £500 in interest tax-free.
Additional-rate (45%) taxpayers: Get no PSA. Any interest earned above your PSA is taxed at your marginal income tax rate (20%, 40%, or 45%).
2. Tax on Dividend Income
You have a Dividend Allowance of £500 per year. This means the first £500 of dividend income is tax-free.
Any dividend income above this allowance is taxed at the following rates:
8.75% for basic-rate taxpayers.
33.75% for higher-rate taxpayers.
39.35% for additional-rate taxpayers.
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How to Reduce Your Tax Bill: Using Tax-Efficient Schemes
For those in the higher tax brackets, or anyone wanting to maximise their take-home pay, using government-approved tax-efficient schemes is an essential part of a smart financial plan.
1. Pensions (Your Most Powerful Tax-Reduction Tool)
How it works: When you contribute to a pension (workplace or SIPP), you get tax relief at your highest marginal rate.
For a higher-rate (40%) taxpayer: A £100 contribution to your pension effectively only costs you £60. Your pension provider claims 20% (£20) from the government automatically, and you claim the other 20% (£20) back via your Self Assessment tax return.
Impact: This is a direct reduction of your income tax bill. Crucially, pension contributions reduce your "adjusted net income." This can help you reclaim your full Personal Allowance if you earn over £100,000, or avoid the High Income Child Benefit Charge if you earn over £60,000.
Plouta Tip: For higher earners, maximising pension contributions up to your Annual Allowance (£60,000) is often the most effective way to reduce your current income tax liability.
2. ISAs (Individual Savings Accounts)
How it works: You invest up to £20,000 per year from your post-tax income.
The Tax Benefit: While there's no upfront relief, all growth and income within the ISA is completely free from further tax. For a higher-rate taxpayer, this is hugely valuable as you avoid paying 33.75% tax on dividends (above the £500 allowance) and 40% tax on savings interest (above the £500 Personal Savings Allowance).
Plouta Tip: An ISA is the perfect partner to a pension. Use it to build an accessible, tax-free pot of money for life's goals before retirement.
3. Marriage Allowance
How it works: If you are married or in a civil partnership and one partner has an income below the £12,570 Personal Allowance, they can transfer £1,260 of their unused allowance to the higher-earning partner, as long as the recipient is a basic-rate (20%) taxpayer.
Impact: This can reduce the higher earner's tax bill by up to £252 for the year.
Frequently Asked Questions (FAQs) About UK Income Tax
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You can find your tax code on your payslip (usually under "Tax Code"), on a P45 form if you've recently left a job, or on a P60 form which you receive from your employer after the end of each tax year. The most reliable way to check your current tax code and see how it's calculated is by logging into your Personal Tax Account on the GOV.UK website or by using the HMRC app.
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While 1257L is the most common code, yours will be different if HMRC needs to adjust your tax-free Personal Allowance. Common reasons include:
You receive taxable company benefits (like a company car or private health insurance).
You have more than one job or pension.
You have underpaid tax from a previous year that is being collected through your code.
You have claimed Marriage Allowance (your code may end in 'M' or 'N'). A different number (e.g., 1157L) means your tax-free allowance has been reduced.
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Once your "adjusted net income" exceeds £100,000, your standard £12,570 Personal Allowance is reduced (or "tapered"). For every £2 you earn above £100,000, your allowance is reduced by £1. This creates an effective 60% tax rate on income between £100,000 and £125,140. Once your income reaches £125,140, your Personal Allowance is reduced to zero.
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Not always. Thanks to the Personal Savings Allowance (PSA), most people can earn some interest from non-ISA savings accounts completely tax-free.
Basic-rate (20%) taxpayers can earn £1,000 in interest per year, tax-free.
Higher-rate (40%) taxpayers can earn £500 in interest per year, tax-free.
Additional-rate (45%) taxpayers do not get a Personal Savings Allowance. You only pay tax (at your marginal rate) on any interest earned above your allowance.
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Dividend income from investments held outside of an ISA is taxed differently from your salary. You have a Dividend Allowance, which is currently £500 per tax year. Any dividend income you receive above this allowance is taxed at:
8.75% for basic-rate taxpayers.
33.75% for higher-rate taxpayers.
39.35% for additional-rate taxpayers.
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The most effective and common government-approved ways to legally reduce your income tax bill are:
Contribute to a pension: You receive tax relief at your highest rate of income tax. This is especially powerful for higher-rate taxpayers as it effectively reduces your taxable income.
Use your ISA allowance: Saving and investing through an ISA ensures all your growth and income is shielded from tax, which is crucial for higher earners who have small or no savings/dividend allowances.
Claim all allowable reliefs: This includes things like the Marriage Allowance or claiming tax relief on professional subscriptions and work-related expenses.
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The Scottish Parliament has the power to set its own income tax rates and bands for non-savings, non-dividend income. This is part of the devolution settlement. As a result, Scotland has more tax bands than the rest of the UK (currently six, from Starter to Top rate), and the thresholds and rates are different, generally resulting in higher earners in Scotland paying more income tax than those on the same salary in England, Wales, or Northern Ireland.
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This is a tax charge that applies if you or your partner receive Child Benefit, and one of you has an "adjusted net income" of over £60,000 for the 2025/26 tax year. The charge claws back the Child Benefit received. For every £200 of income over £60,000, 1% of the Child Benefit is clawed back. This means that once your income reaches £80,000, the tax charge is equal to the full amount of the Child Benefit received. You can reduce your adjusted net income, and therefore the charge, by making pension contributions.
Take Control of Your Tax Position
The freezing of tax thresholds across most of the UK means more people are finding themselves paying a higher rate of tax each year. While you cannot change the tax rates, you can take control of your financial planning.
By understanding which tax bands apply to you and making strategic use of government-backed schemes like pensions and ISAs, you can significantly reduce your tax liability. This allows more of your hard-earned money to work for you, helping you build wealth faster and achieve your goals of financial security and independence. Regularly reviewing your tax position is no longer just for the wealthy – it's a vital part of modern financial wellness.
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Disclaimer: This guide provides general information about UK Income Tax based on rules and allowances known as of June 2025. It is for informational and educational purposes only and does not constitute financial or tax advice. Tax laws are complex and subject to change. Your personal circumstances, including where you live in the UK, will affect your tax liability. Always seek professional, regulated financial advice or consult with a tax specialist for guidance tailored to your specific situation.
