Income Tax Explained
The tax-free Personal Allowance, the bands above it, and why moving into a higher one doesn't tax your whole income at that rate
Income Tax is the tax you pay on the money you earn from your salary, but also from things like self-employed profits, some benefits, and rental income. If you're an employee, it's taken automatically out of your pay before it ever reaches your bank account, through a system called PAYE (Pay As You Earn). This page explains how much you pay, and why.
The short version
You don't pay Income Tax on everything you earn. You get a tax-free allowance first, and then different "slices" of your income above that are taxed at different rates. The rate goes up as you earn more, but only on the extra income in each band, not on everything you earn. That distinction can be complex to get your head around, so a worked example below covers it in more detail. (If any term on this page loses you, the Glossary has a quick, plain-English definition.)
The Personal Allowance
For the 2026/27 tax year (6 April 2026 to 5 April 2027), everyone gets a Personal Allowance of £12,570. This is the amount you can earn in a year before you pay any Income Tax at all.
If you earn less than £100,000 a year, your Personal Allowance stays fixed at £12,570 regardless of how much (or little) you earn below that. If you earn more than £100,000, your allowance starts to shrink, see the 60% tax trap for the details on that, because it's complicated enough to deserve its own page.
If you're married or in a civil partnership and one of you isn't using all of your Personal Allowance, some of it can be transferred to the other, see Marriage Allowance for how much that can save you.
If you or your partner claim Child Benefit and either of you has an individual income over £60,000, some of it gets clawed back through a separate charge, see High Income Child Benefit Charge for how that works.
The rates and bands
Once your Personal Allowance is used up, everything else you earn falls into one of these bands (figures below are for England, Wales, and Northern Ireland. Note: Scotland has its own bands and rates, which are covered separately):
| 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 thresholds are currently frozen and are not expected to rise until 2031, which matters more than it sounds. As wages rise with inflation but the bands stay still, more people drift into higher bands over time even though their "real" spending power hasn't necessarily gone up. This effect is sometimes called fiscal drag.
These same bands don't just set your Income Tax rate. Where your income sits within them also decides the rate on any dividends, savings interest, or capital gains you have outside an ISA, since all three stack on top of your other income to work out which band they fall into.
Worked example: £35,000 salary
Say you earn £35,000 a year, with no other income or deductions.
- The first £12,570 is tax-free (your Personal Allowance).
- The remaining £22,430 (£35,000 − £12,570) falls entirely within the basic rate band and is taxed at 20%.
- Income Tax due: £22,430 × 20% = £4,486 for the year.
Your salary after Income Tax would be £30,514 (before National Insurance and any other deductions. See the Salary Calculator for the full picture including NI).
Worked example: £60,000 salary (crossing into higher rate)
This is where "different slices are taxed at different rates" really matters.
- The first £12,570 is tax-free.
- The next £37,700 (taking you up to £50,270) is taxed at the basic rate of 20% = £7,540.
- The remaining £9,730 (£60,000 − £50,270) is taxed at the higher rate of 40% = £3,892.
- Total Income Tax due: £7,540 + £3,892 = £11,432.
Notice what didn't happen: your entire £60,000 was not taxed at 40%. Only the portion above £50,270 was. This is often referred to as your "marginal rate", the rate on your next pound earned, not on your whole income. A lot of people worry that a pay rise which pushes them into a new band will leave them worse off overall. It won't as you always keep more of a pay rise than you lose, because only the amount above the threshold is taxed at the higher rate.
Your effective rate vs. your marginal rate
In the £60,000 example above, your marginal rate (the rate on your last pound earned) is 40%. But your effective rate, the tax you actually paid as a percentage of your total income, is £11,432 ÷ £60,000 = 19.1%. These two numbers are easily confused, and it's worth keeping them separate in your head: your marginal rate tells you what happens to your next pay rise or bonus; your effective rate tells you what's actually happened to your income overall.
What about Scotland?
If you live in Scotland, your Income Tax is calculated using different rates and bands. This is set by the Scottish Government rather than Westminster, with six bands instead of four, and a Personal Allowance taper that reaches an effective marginal rate of 67.5% rather than the 60% described above. (Income Tax on savings and dividend income still follows the UK-wide rules above, wherever in the UK you live.) This page and the rest of the site are written primarily around England, Wales, and Northern Ireland's system, since that covers the majority of UK employees; see Scottish Income Tax Explained for the full band table, worked examples, and why it isn't always more expensive.
How this actually gets taken from your pay
You don't do this calculation yourself each month. Your employer works it out for you using PAYE, guided by your tax code (usually something like 1257L), and deducts the right amount from each payslip automatically. See Your Payslip Explained for what that actually looks like, line by line. If your tax code is wrong, you can end up overpaying or underpaying, see Understanding Your Tax Code to check yours. HMRC reconciles the whole tax year after it ends, and tells you the result via a P800 if the two don't match.
Paying less Income Tax legitimately
If you're looking to reduce your Income Tax bill, pension contributions are among the most effective legitimate ways to do it. See Reducing Your Tax Through Pensions for how, and Your Pension Contributions Explained for how the money actually gets there.
Student loan repayments are separate from this
If you took out a student loan, repayments come out of your pay alongside Income Tax, but the two are calculated completely independently. A repayment plan's threshold and rate don't come from the Income Tax bands above, and a student loan deduction doesn't change your Income Tax bill either way. See Student Loan Repayments Explained for how repayments actually work.
Income Tax and NI aren't the whole picture
Once Income Tax and National Insurance are taken out, what's left still gets taxed further as you spend it: VAT on most purchases, Fuel Duty if you drive, and more. See Your Total Tax Burden for how these two payslip taxes combine with everything else into a fuller effective tax rate.
This page explains general Income Tax rules for employees and is not personalised advice; see the disclaimer.