UK Income Tax Calculator 2025/26

How UK Income Tax Works

Income tax is the main tax deducted from your earnings in the United Kingdom. It is charged on most types of income including employment wages, pension income, rental income, and profits from self-employment. The amount of income tax you pay depends on how much you earn and which tax band or bands your income falls into.

The UK operates a progressive income tax system. This means you pay different rates on different portions of your income, not a single flat rate on the total. Each band has a threshold, and only the income that falls within that band is taxed at that rate. The first portion of your income up to the personal allowance is completely tax-free.

Income tax is normally collected through the Pay As You Earn (PAYE) system for employees, meaning your employer deducts it from your pay before you receive it. Self-employed individuals pay through Self Assessment, filing a tax return each year. Understanding how income tax is calculated helps you check your payslip is correct and plan your finances effectively.

Income Tax Rates and Bands for 2025/26

The income tax rates for England, Wales, and Northern Ireland for the 2025/26 tax year (6 April 2025 to 5 April 2026) are set by the UK Government. These three regions share the same rates and thresholds:

The basic rate band is £37,700 wide (from £12,571 to £50,270). Combined with the personal allowance of £12,570, this means you can earn up to £50,270 before the higher rate of 40% applies. The additional rate of 45% applies to income above £125,140.

It is important to note that the personal allowance and all thresholds have been frozen since 2021/22 and are expected to remain frozen until 2028/29. With wages rising due to inflation, this fiscal drag means more people are being pulled into higher tax bands each year, even without receiving a real pay increase.

Scottish Income Tax Rates 2025/26

Scotland has devolved powers over income tax rates and bands for non-savings, non-dividend income. The Scottish Parliament has chosen to implement a six-band system with different rates and thresholds from the rest of the UK:

The starter rate of 19% means Scottish earners below £14,876 pay slightly less income tax than those in England. However, the higher rates of 42%, 45%, and 48% mean that above approximately £28,850, Scottish taxpayers pay more. At higher incomes the difference can be substantial. For example, on a £60,000 salary, a Scottish taxpayer pays around £1,500 more in income tax than an English taxpayer.

The personal allowance and National Insurance thresholds remain the same across the entire UK. Only income tax rates are devolved to the Scottish Parliament. Savings and dividend income is also taxed at UK-wide rates regardless of where in Scotland you live.

The Personal Allowance Taper Explained

One of the most significant features of the UK income tax system is the personal allowance taper for high earners. If your adjusted net income exceeds £100,000, your personal allowance is reduced by £1 for every £2 of income above this threshold. This continues until the allowance reaches zero at £125,140.

The effect is dramatic. On income between £100,000 and £125,140, for every additional £2 you earn, you lose £1 of personal allowance. That lost £1 of allowance would have been tax-free, but is now taxed at 40%. This means the effective marginal rate on income in this range is 60% — the standard 40% higher rate plus an additional 20% from the loss of personal allowance. When you add the 2% National Insurance rate for earnings above the upper earnings limit, the combined marginal rate reaches 62%.

This is sometimes called the "60% tax trap" and is one of the highest marginal rates in the UK system. It is particularly important for those considering pay rises, bonuses, or additional income that would push them into or through this band. Strategies such as making pension contributions can be especially effective for reducing income into this range because contributions reduce adjusted net income and can restore some or all of the personal allowance.

Worked Examples

Example 1: Basic Rate Taxpayer on £30,000

An employee earning £30,000 in England with no other income:

• Gross income: £30,000
• Personal allowance: £12,570
• Taxable income: £30,000 - £12,570 = £17,430
• Income tax: £17,430 at 20% = £3,486.00
• Effective tax rate: 11.62%
• Marginal rate: 20%

This taxpayer is entirely within the basic rate band. Every additional pound earned will be taxed at 20% until income reaches £50,270. The effective rate of 11.62% is lower than the 20% band rate because the personal allowance shelters the first £12,570 from tax entirely.

Example 2: Higher Rate Taxpayer on £65,000

An employee earning £65,000 in England:

• Gross income: £65,000
• Personal allowance: £12,570
• Taxable income: £65,000 - £12,570 = £52,430
• Basic rate: £37,700 at 20% = £7,540.00
• Higher rate: £14,730 at 40% = £5,892.00
• Total income tax: £13,432.00
• Effective tax rate: 20.66%

Example 3: PA Taper on £110,000

An employee earning £110,000 in England:

• Gross income: £110,000
• PA reduction: (£110,000 - £100,000) / 2 = £5,000
• Personal allowance: £12,570 - £5,000 = £7,570
• Taxable income: £110,000 - £7,570 = £102,430
• Basic rate: £37,700 at 20% = £7,540.00
• Higher rate: £64,730 at 40% = £25,892.00
• Total income tax: £33,432.00
• Effective tax rate: 30.39%

The personal allowance taper has increased the effective rate significantly. Without the taper, tax would be £31,432 — the taper adds £2,000 to the bill by exposing an extra £5,000 of income to the 40% rate.

What Changed in April 2025

The 2025/26 tax year brought several changes that affect income tax calculations:

• Frozen thresholds continue: The personal allowance (£12,570), basic rate threshold (£37,700), and higher rate threshold (£50,270) all remain frozen. This fiscal drag continues to pull more earners into higher bands as wages increase.
• Scottish rates unchanged: The Scottish Government maintained the same rate structure for 2025/26, with the six-band system continuing at 19%, 20%, 21%, 42%, 45%, and 48%.
• National Living Wage rise: The increase to £12.21 per hour means more minimum-wage workers are now earning above the personal allowance for the first time, bringing them into the income tax net.

Common Mistakes When Calculating Income Tax

1. Thinking Tax Rates Apply to All Income

The most common mistake is believing that if you are a higher rate taxpayer, all your income is taxed at 40%. In reality, only the portion above £50,270 is taxed at 40%. The first £12,570 is tax-free, and income from £12,571 to £50,270 is taxed at just 20%. The progressive system means your effective rate is always lower than your highest marginal rate.

2. Forgetting the PA Taper

Earners between £100,000 and £125,140 face an effective 60% marginal rate due to the personal allowance taper. Many people earning around £100,000 are unaware of this and are surprised by the sudden jump in their tax bill. Making pension contributions is one of the most effective ways to reduce income below £100,000 and restore the full personal allowance.

3. Confusing UK and Scottish Rates

Your tax code tells HMRC which country's rates to apply. Scottish taxpayers have an 'S' prefix on their tax code (e.g. S1257L). If you live in Scotland but use a calculator set to England rates, your tax estimate will be inaccurate. Always check your tax region matches your residence.

4. Not Accounting for Other Income

Income tax applies to your total income from all sources, not just your salary. Dividends, rental income, savings interest above your allowance, and other income all add to your total. This additional income can push you into a higher tax band or trigger the personal allowance taper.