UK Tax Brackets Explained 2025: Income Tax & National Insurance Guide

The UK tax system combines income tax with National Insurance contributions. This guide explains the 2025-26 tax year rates and how they affect your take-home pay.

Quick Summary (TL;DR)

Key Points for 2025-26:

• Personal allowance: £12,570 (tax-free)
• Basic rate: 20% on £12,571-£50,270
• Higher rate: 40% on £50,271-£125,140
• National Insurance: 12% (employees) up to £50,270
• Pension contributions: Auto-enrollment at 8% total

Income Tax Brackets 2025-26

Income Band	Tax Rate	Annual Income Range
Personal Allowance	0%	£0 - £12,570
Basic Rate	20%	£12,571 - £50,270
Higher Rate	40%	£50,271 - £125,140
Additional Rate	45%	£125,141+

National Insurance Rates 2025-26

Class 1 (Employees)

• Primary Threshold: £12,570 per year
• Upper Earnings Limit: £50,270 per year

Income Range	NI Rate
£0 - £12,570	0%
£12,571 - £50,270	12%
£50,271+	2%

How Tax is Calculated

Example 1: £30,000 Salary

Income Tax:

• Personal Allowance: £12,570 (0%)
• Remaining £17,430: £3,486 (20%)

National Insurance:

• First £12,570: £0 (0%)
• Remaining £17,430: £2,091.60 (12%)

Total Deductions: £5,577.60 Take-home: £24,422.40

Example 2: £60,000 Salary

Income Tax:

• Personal Allowance: £12,570 (0%)
• Basic Rate: £37,700 × 20% = £7,540
• Higher Rate: £9,730 × 40% = £3,892
• Total Income Tax: £11,432

National Insurance:

• First £12,570: £0 (0%)
• Next £37,700: £4,524 (12%)
• Remaining £9,730: £194.60 (2%)
• Total NI: £4,718.60

Total Deductions: £16,150.60 Take-home: £43,849.40

Personal Allowance Tapering

For high earners, the personal allowance reduces by £1 for every £2 earned above £100,000:

• £100,000: Full allowance (£12,570)
• £110,000: Reduced allowance (£7,570)
• £125,140: No allowance (£0)

Scotland Tax Rates

Scotland has different income tax rates (but same National Insurance):

Band	Rate	Income Range
Personal Allowance	0%	£0 - £12,570
Starter Rate	19%	£12,571 - £14,876
Basic Rate	20%	£14,877 - £26,561
Intermediate Rate	21%	£26,562 - £43,662
Higher Rate	42%	£43,663 - £125,140
Top Rate	47%	£125,141+

Key Dates for 2025-26

• Tax Year: April 6, 2025 - April 5, 2026
• Self Assessment Deadline: January 31, 2026
• Payment on Account: January 31 & July 31

Tax-Free Allowances

ISA Allowance

• Annual Limit: £20,000
• Stocks & Shares ISA: Up to full £20,000
• Cash ISA: Up to full £20,000
• Lifetime ISA: £4,000 (counts toward £20,000 limit)

Pension Contributions

• Annual Allowance: £60,000
• Lifetime Allowance: Abolished from April 2024

Money-Saving Tips

1. Use ISA allowances: Tax-free growth on investments
2. Pension contributions: Reduce taxable income
3. Salary sacrifice: Exchange salary for benefits
4. Marriage allowance: Transfer unused personal allowance
5. Gift Aid: Extend basic rate band by 25%

Common Mistakes

1. Not Using Full ISA Allowance

Many people don't maximize their £20,000 annual ISA allowance, missing out on tax-free returns.

2. Ignoring Pension Tax Relief

Higher rate taxpayers can claim additional tax relief on pension contributions through self-assessment.

3. Forgetting Marriage Allowance

Couples can transfer £1,260 of unused personal allowance, saving up to £252 per year.

Business Owners & Dividends

Dividend Tax Rates 2025-26

• Dividend Allowance: £500
• Basic Rate: 8.75%
• Higher Rate: 33.75%
• Additional Rate: 39.35%

Corporation Tax

• Small Profits Rate: 19% (profits up to £50,000)
• Main Rate: 25% (profits over £250,000)
• Marginal Rate: 26.5% (profits £50,001-£250,000)

Planning for 2025-26

Before April 5, 2025

• Use current year ISA allowance
• Make pension contributions
• Realize capital gains (if below allowance)
• Complete self-assessment

After April 6, 2025

• Set up new ISA contributions
• Review salary sacrifice options
• Plan dividend payments (if business owner)

Frequently Asked Questions (FAQ)

What is the personal allowance for 2025-26 in the UK?

The personal allowance is £12,570 for most people. This means you don't pay income tax on the first £12,570 of your income.

How much National Insurance do I pay in the UK?

Employees pay 12% National Insurance on earnings between £12,570 and £50,270, then 2% on earnings above £50,270.

Do I have to join a workplace pension scheme?

Yes, if you're aged 22-65 and earn over £10,000, you're automatically enrolled. The minimum contribution is 8% total (5% employee, 3% employer).

When do I become a higher rate taxpayer?

You become a higher rate taxpayer when your taxable income exceeds £50,270, paying 40% tax on income above this threshold.

Can I still claim marriage allowance in 2025-26?

Yes, you can transfer £1,260 of unused personal allowance to your spouse/civil partner if they're a basic rate taxpayer, saving up to £252.

What happens to my personal allowance if I earn over £100,000?

Your personal allowance reduces by £1 for every £2 earned above £100,000, disappearing completely at £125,140.

Step-by-Step: How to Calculate Your UK Tax

Step 1: Determine Your Annual Salary

Calculate your total employment income before any deductions.

Step 2: Apply Personal Allowance

Subtract £12,570 from your gross income (unless you earn over £100,000).

Step 3: Calculate Income Tax

Apply the progressive rates: 20% basic, 40% higher, 45% additional rate.

Step 4: Calculate National Insurance

Apply 12% on earnings £12,570-£50,270, then 2% above £50,270.

Step 5: Deduct Pension Contributions

Subtract your workplace pension contributions (minimum 5% employee).

Step 6: Calculate Take-Home Pay

Subtract total tax, NI, and pension from gross salary.

Conclusion

The UK tax system rewards planning and understanding. Use our UK Tax Calculator to model different scenarios and optimize your tax position.

Remember: Tax rules can change. This guide covers announced rates for 2025-26. Always verify current rates and consult a tax advisor for complex situations.