UK income tax explained: bands, rates and allowances

Three principles drive everything:

1. You get a tax-free personal allowance — £12,570 for most people in 2026/27. Income below it is untaxed.
2. Tax is charged in slices (bands). Each band’s rate applies only to the income falling inside that band — never to your whole income.
3. Your marginal rate ≠ your average rate. The marginal rate is what the next pound is taxed at; your effective (average) rate across all income is always lower.

So no pay rise can ever leave you with less after income tax — a higher band only affects the pounds above the threshold. (One caveat: cliff-edges in benefits, like Child Benefit withdrawal, can bite — but that’s not the tax bands themselves.)

After the £12,570 personal allowance:

Worked example: £60,000

• First £12,570 — tax-free;
• £12,571–£50,270 (£37,700) at 20% = £7,540;
• £50,271–£60,000 (£9,730) at 40% = £3,892;
• Total: £11,432 — an effective rate of just 19.1%, despite being a “40% taxpayer”.

That’s the band system in action: only £9,730 of the £60,000 is actually taxed at 40%.

Above £100,000, the personal allowance is withdrawn at £1 for every £2 of extra income — gone completely by £125,140. Losing tax-free allowance while also paying 40% creates a hidden marginal rate of 60%.

Worked example: £100,000 → £110,000

• Tax at £100,000: £27,432
• Tax at £110,000: £33,432 (allowance reduced to £7,570)
• Extra tax: £6,000 on £10,000 of extra income — exactly 60% (and NI still takes its 2% on top).

The standard defence is a pension contribution: paying the excess over £100,000 into a pension restores your allowance and gets 40% relief — effectively 60p of benefit per £1 contributed for income in this zone. Test your own numbers in the Income Tax Calculator, which handles the taper automatically.

Scotland sets its own rates and bands on earned income (savings and dividends follow UK-wide rules). For 2026/27, on taxable income above the £12,570 allowance:

Lower earners pay slightly less than in the rest of the UK; higher earners pay noticeably more — the 42% band starts around £43,662 of total income versus £50,270 elsewhere. The 60% trap exists in Scotland too, at even higher effective rates. Our Salary and Income Tax calculators both have a Scotland toggle.

Beyond the personal allowance, the main legal reducers:

• Pension contributions — relief at your marginal rate; the single most powerful lever, especially in the 60% zone.
• Marriage allowance — a basic-rate taxpayer whose partner earns under £12,570 can receive £1,260 of their allowance, saving up to £252 a year.
• Personal savings allowance — £1,000 of savings interest tax-free for basic-rate taxpayers, £500 for higher-rate, £0 for additional-rate; ISAs shelter interest entirely.
• Dividend allowance — the first £500 of dividends tax-free.
• Gift Aid — donations extend your basic-rate band; higher-rate taxpayers can claim the difference via Self Assessment.

Check current limits on GOV.UK — allowances change more often than the headline bands.

PAYE collects tax from wages and pensions automatically through your tax code, spreading the year’s bill across each payday. It’s accurate for simple situations but relies on the code being right — check it if your pay or benefits change.

Self Assessment covers everything PAYE can’t: self-employment, rental income, dividends beyond the allowance, the High Income Child Benefit Charge, or claiming higher-rate relief. Returns are due online by 31 January after the tax year ends. Self-employed? Our self-employed tax guide and calculator cover the whole picture, including National Insurance and payments on account.