The UK tax system governs how your earnings, savings, investments and pensions are charged. This guide walks through every concept you need — rates, bands, allowances, thresholds — with current figures for the 2026/27 tax year and the structural features that apply year after year.
How UK income tax is structured
The UK personal tax system charges income at graduated rates. You do not pay a single rate on your total income; instead, different portions are taxed at different rates as your income rises. Three rates matter for most earners:
| Band | Rate | Applies to (2026/27) |
|---|---|---|
| Personal Allowance | 0% | First £12,570 |
| Basic rate | 20% | £12,571 – £50,270 |
| Higher rate | 40% | £50,271 – £125,140 |
| Additional rate | 45% | Above £125,140 |
So if you earn £60,000 in 2026/27, you pay nothing on the first £12,570, 20% on the next £37,700, and 40% only on the remaining £9,730. Your marginal rate is 40%, but your effective rate is much lower — roughly 18%.
Personal Allowance — the tax-free amount
Every UK taxpayer is entitled to a Personal Allowance. For 2026/27, that is £12,570. Below this threshold, no income tax is due.
Crucially, the Personal Allowance tapers at high incomes. For every £2 you earn above £100,000, you lose £1 of your Personal Allowance. Between £100,000 and £125,140, this creates an effective marginal tax rate of 60% — the single biggest quirk of the UK tax system. Full Personal Allowance guide.
The UK tax year
Unlike most countries, the UK tax year runs from 6 April to 5 April the following year. So the 2026/27 tax year begins 6 April 2026 and ends 5 April 2027. This dates back to calendar reforms in 1752 and has been preserved ever since.
Key implications:
- Annual allowances (Personal Allowance, ISA allowance, pension allowance) reset on 6 April
- Self-assessment tax returns must be filed by 31 January following the end of the tax year
- HMRC thresholds and rates can change on the first day of a new tax year
National Insurance — the other tax on earnings
Alongside income tax, most UK workers pay National Insurance Contributions (NICs). For employees in 2026/27:
- No NI below £12,570 (matches the Personal Allowance threshold)
- 8% on earnings between £12,570 and £50,270
- 2% on earnings above £50,270
NI is a flat rate within each band — there is no "higher rate" jump for NI above the higher-rate income tax threshold. This is why, contrary to popular belief, the highest effective marginal rate in the UK is not 45% but 60% (in the Personal Allowance taper zone) or even higher when NI is factored in.
Tax on savings
Interest from UK savings accounts is taxable, but most people never pay it. Two allowances ensure this:
Personal Savings Allowance (PSA)
- Basic-rate taxpayers: first £1,000 of savings interest is tax-free
- Higher-rate taxpayers: first £500 of savings interest is tax-free
- Additional-rate taxpayers: no PSA — every penny of interest is taxable
Starting Rate for Savings
If your non-savings income is below £17,570, you may qualify for a 0% rate on up to £5,000 of savings interest. This benefits low earners, pensioners with modest private pensions, and anyone taking a career break.
ISAs — completely tax-free
Cash ISAs and Stocks & Shares ISAs protect savings and investment returns from all UK income tax and capital gains tax. The annual ISA allowance for 2026/27 is £20,000. No PSA or starting rate calculations apply — ISA returns are simply tax-free.
Tax on investments and dividends
Dividends from shares (including shares held in a General Investment Account, but not within an ISA) are taxed separately from earned income. For 2026/27:
- Dividend Allowance: first £500 of dividends tax-free
- Basic rate: 10.75% on dividends above the allowance
- Higher rate: 35.75%
- Additional rate: 39.35%
Capital Gains Tax (CGT) on the sale of investments is 10% (basic-rate payers) or 20% (higher-rate payers) above the £3,000 annual exempt amount, with different rates for residential property gains.
Pension contributions
Pension contributions receive tax relief at your marginal rate. Pay £80 into a pension as a basic-rate taxpayer, and HMRC adds £20 to make it £100. Higher-rate taxpayers can claim an additional 20% via self-assessment, making the effective cost of a £100 pension contribution just £60.
The annual pension contribution allowance is £60,000 (2026/27), but this tapers for very high earners above £260,000.
Scotland differs
Scottish taxpayers pay Scottish income tax on earned income (but not on savings or dividends, which follow UK-wide rates). The Scottish bands are more granular, with five rates from 19% to 48%. If you live in Scotland, your Personal Allowance is the same (£12,570), but the basic and higher rates kick in at different thresholds.
Self-assessment — who needs to file
You must file a self-assessment tax return if:
- You are self-employed and earned more than £1,000
- You received more than £10,000 in untaxed income (dividends, rental, etc.)
- Your income is above £150,000 regardless of source
- You claim child benefit and earn more than £80,000 (High Income Child Benefit Charge)
- You made capital gains above the £3,000 annual allowance
- You received foreign income
Deadlines for the 2026/27 tax year: 31 October 2027 for paper returns, 31 January 2028 for online returns.
How much will you actually pay?
The fastest way to see your personal tax bill is our UK Income Tax Calculator. Enter your salary, pick your region (Scotland or England/Wales/NI), and get your take-home after income tax, NI and (optionally) student loan deductions.
For specific deep-dives:
- Personal Allowance 2026/27 — how the £12,570 threshold works and the 60% taper trap
- UK Salary & Cost of Living Calculator — see how far your salary goes in 10 UK cities
What's changing
Most UK tax thresholds are frozen until April 2028 (and potentially beyond) under policies announced in the 2022 and 2024 Autumn Budgets. This has two important effects:
- Fiscal drag: because wages rise with inflation but thresholds don't, more people are pulled into higher tax bands each year without any change in real earnings
- The 60% trap affects more people: the £100,000 taper threshold hasn't changed since 2010. A salary that qualifies as "senior professional" today runs straight into the taper that was designed for genuinely high earners 15 years ago
Editorial note
UK tax rules change often. Article figures reflect HMRC publications for the current tax year. For decisions involving material sums of money — pension contributions, ISA allocations, capital gains timing — verify with HMRC directly or a qualified tax adviser. Kaeltripton is an independent editorial publisher, not a regulated financial advisor.
