Last updated: April 2026 · Sourced from official UK government publications
This is a plain-English definitions guide. All rates, bands, and allowances are drawn from HMRC and gov.uk official sources. This is not financial advice, see the disclaimer below.
Income tax is the biggest deduction from most people’s pay, yet many people don’t fully understand how the bands work, what the Personal Allowance does, or how to check they’re on the right tax code. Here’s a plain-English breakdown.
Income tax is charged in bands, not as a flat rate. You pay 0% on the first £12,570 (the Personal Allowance), 20% on income up to £50,270, 40% up to £125,140, and 45% above that. Each rate applies only to the portion of income within that band, not to your total earnings.
The first £12,570 of income is tax-free. This is the Personal Allowance.
For 2025/26, the UK income tax bands are: 0% on income up to £12,570 (Personal Allowance), 20% from £12,571 to £50,270, 40% from £50,271 to £125,140, and 45% above £125,140. Scotland sets its own rates and bands separately. These thresholds have been frozen since 2021/22.
| Band | Taxable income | Rate |
|---|---|---|
| Personal Allowance | Up to £12,570 | 0% |
| Basic rate | £12,571 – £50,270 | 20% |
| Higher rate | £50,271 – £125,140 | 40% |
| Additional rate | Over £125,140 | 45% |
Note: Scotland has different income tax rates and bands set by the Scottish Parliament.
Example: on a salary of £40,000, you pay 0% on the first £12,570, then 20% on the remaining £27,430. Your income tax bill is roughly £5,486 per year (£457/month). Not 20% of the full £40,000.
The Personal Allowance is £12,570, the amount of income you earn before paying any income tax. Above £100,000, the allowance is withdrawn at £1 for every £2 earned. By £125,140, it is gone entirely, creating an effective 60% marginal tax rate on income in that range. This is sometimes called the ‘£100k trap’.
The standard Personal Allowance is £12,570. But it starts to reduce once your income exceeds £100,000, you lose £1 of allowance for every £2 you earn above that level.
By the time you earn £125,140, the Personal Allowance is gone entirely. This creates an effective marginal tax rate of 60% on income between £100,000 and £125,140, one of the strangest quirks of the UK tax system.
HMRC defines ‘adjusted net income’ as the figure used to calculate Personal Allowance abatement above £100,000. HMRC publishes full guidance on how adjusted net income is calculated and on the £100,000 threshold at gov.uk/income-tax-rates. This is a general explanation of HMRC rules, not tax or financial advice, speak to a qualified adviser before making any decisions about your own tax position.
If you’re employed, your employer deducts income tax from your wages each payslip via PAYE (Pay As You Earn). Your employer gets your tax code from HMRC, which tells them how much to deduct.
The standard tax code is 1257L, the ‘L’ means you get the standard Personal Allowance, and 1257 represents £12,570 (drop the last digit). Other letters mean different things: ‘M’ and ‘N’ relate to Marriage Allowance, ‘K’ means your untaxed income exceeds your allowances, ‘BR’ means everything is taxed at basic rate (often a second job).
Check your payslip, if your tax code looks wrong, contact HMRC or check the HMRC app. The wrong tax code means you may be paying too much or too little tax.
Income tax applies to employment income (salary, bonuses, benefits in kind), self-employment profits, rental income from property, savings interest above the Personal Savings Allowance, dividends above the Dividend Allowance (£500 in 2025/26), and pension income once it is drawn. Income inside an ISA or pension is largely protected.
Income tax applies to more than just your salary:
Income inside an ISA or pension is largely protected from income tax.
HMRC reduces the income figure subject to tax through several mechanisms: pension contributions lower your taxable income at your marginal rate; the Marriage Allowance lets eligible spouses transfer up to £1,260 of Personal Allowance; Gift Aid donations extend the basic-rate band; and salary sacrifice arrangements (such as cycle-to-work schemes) reduce taxable pay.
HMRC’s rules mean several things reduce the income figure used to calculate income tax:
The personal allowance is £12,570 for 2025/26, the same as 2024/25. This is the amount of income you can earn each year before paying income tax. It has been frozen at this level since 2021/22 and is set to remain frozen until at least 2027/28.
No. Tax bands are marginal, meaning you only pay the higher rate on the portion of income above each threshold. You pay 20% on income between £12,571 and £50,270, then 40% only on earnings above that. The 45% additional rate applies above £125,140.
A tax code tells your employer how much tax-free income to give you in each pay period. 1257L is the most common code, the number 1257 represents a £12,570 personal allowance, and the L means you qualify for the standard allowance. HMRC issues codes; you can check yours via your Personal Tax Account.
It depends on your tax band and how much interest you earn. Basic-rate taxpayers have a £1,000 Personal Savings Allowance; higher-rate taxpayers get £500; additional-rate taxpayers get none. Interest earned inside an ISA is always tax-free. Interest above your allowance is added to your income and taxed at your marginal rate.
Fiscal drag happens when tax thresholds are frozen while wages rise with inflation. More people are pulled into higher tax bands over time without any change in the headline rates. Because the personal allowance and higher-rate threshold have been frozen since 2021, many workers are paying more tax in real terms than they were before.
Budget changes to tax bands, the Personal Allowance, NI thresholds, FinanceSimply covers every announcement that affects your take-home pay, in plain English.
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