UK Income Tax Rates 2025/26: Bands and Thresholds

Key Takeaways: UK Income Tax 2025/26

Understanding the UK tax thresholds helps you manage your personal finances more efficiently. Under the Finance Act 2021, many core thresholds remain frozen, meaning inflation may push your earnings into higher brackets.

• The tax-free Personal Allowance remains set at £12,570 for the 2025/26 tax year.
• The Basic Rate of 20% applies to taxable income between £12,571 and £50,270.
• The Higher Rate of 40% is charged on taxable income between £50,271 and £125,140.
• The Additional Rate of 45% applies to all taxable income exceeding £125,140.
• A hidden 60% effective tax rate impacts earnings between £100,000 and £125,140 due to allowance tapering.

How much can you earn tax-free in 2025/26?

You can earn up to £12,570 tax-free during the 2025/26 tax year under the standard Personal Allowance framework. This threshold represents the amount of income you can receive before HMRC begins to levy income tax.

The Personal Allowance has been frozen at £12,570 since the 2021/22 tax year. According to Section 5 of the Finance Act 2021, as subsequently extended, this freeze will remain in place until at least 5 April 2028.

Your allowance may decrease if your income climbs above specific boundaries. For every £2 you earn over £100,000, your entitlement falls by £1, meaning your Personal Allowance disappears entirely once your income reaches £125,140.

What are the Income Tax bands for 2025/26?

The 2025/26 income tax bands dictate the rate of tax applied to each portion of your taxable income. The three main tax rates for England, Wales, and Northern Ireland are established under the Finance Act 25, ss. 2-3.

How do marginal tax bands actually work?

Marginal tax bands mean you only pay higher tax rates on the specific portion of income that exceeds each threshold. You do not pay the higher rate on your entire annual income.

For a salary of £60,000, the step-by-step mathematical calculation of your income tax liability under HMRC rules proceeds as follows:

1. The first £12,570 of your income is tax-free because of your standard Personal Allowance.
2. The next £37,700 of income falls into the basic rate band and is taxed at 20%, resulting in £7,540 in tax.
3. The remaining £9,730 of income falls into the higher rate band and is taxed at 40%, resulting in £3,892 in tax.
4. Adding these segments together gives a total annual income tax liability of £11,432.

What is the 60% tax trap between £100,000 and £125,140?

The 60% tax trap is an elevated effective tax rate caused by the tapering of the Personal Allowance for higher earners. This dynamic occurs exclusively on the band of income earned between £100,000 and £125,140.

Because your Personal Allowance is reduced by £1 for every £2 of income above £100,000, earning an extra £100 loses you £50 of your tax-free allowance. You pay 40% tax on that £100, plus an extra 40% tax on the £50 of allowance that has now become taxable.

This combined effect creates an effective marginal tax rate of 60% on this portion of your earnings. Pension contributions and charitable donations are common strategies used to reduce taxable income below this threshold.

How does the savings income starting rate work?

The starting rate for savings provides up to £5,000 of savings interest completely tax-free for individuals with low earned income. This starting rate applies on top of your normal personal savings allowance.

The maximum starting rate limit of £5,000 is only available if your other earned income is £12,570 or less. Every £1 of non-savings income, such as wages or pension income, reduces your starting rate for savings by £1.

If your taxable non-savings income exceeds £17,570, you cannot claim the starting rate for savings. You will instead rely on your standard Personal Savings Allowance, which is capped based on your tax band.