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The UK uses a progressive tax system — you pay
different rates on different portions of your income.
Understanding how it works means you can plan your
finances more effectively and avoid nasty surprises
at the end of the tax year.
The personal allowance 2026/27
Everyone gets a personal allowance — the amount you
can earn before paying any income tax. In 2026/27
this is £12,570.
You pay no income tax on the first £12,570 you earn
each year. This applies whether you earn £15,000
or £150,000 — though there is an important exception
for very high earners.
If your income exceeds £100,000, your personal
allowance reduces by £1 for every £2 you earn above
that threshold. At £125,140 the personal allowance
disappears entirely. This creates an effective 60%
tax rate on income between £100,000 and £125,140 —
one of the highest effective rates in the UK tax
system.
UK income tax bands 2026/27
The personal allowance covers the first £12,570.
Above that, the following rates apply:
The basic rate of 20% applies on earnings between
£12,571 and £50,270.
The higher rate of 40% applies on earnings between
£50,271 and £125,140.
The additional rate of 45% applies on all earnings
above £125,140.
The most important thing to understand is that you
do not pay 40% on your entire salary if you are a
higher rate taxpayer. You pay 20% on the portion
between £12,571 and £50,270, and 40% only on the
portion above £50,270.
A worked example — £60,000 salary
On a salary of £60,000 in 2026/27:
You pay no tax on the first £12,570.
You pay 20% income tax on £37,700 (the portion
between £12,570 and £50,270) — which is £7,540.
You pay 40% income tax on £9,730 (the portion
between £50,270 and £60,000) — which is £3,892.
Your total income tax bill is £11,432 per year —
an effective rate of 19.1% on your total income,
not 40%.
Scottish income tax rates 2026/27
If you live in Scotland, different rates apply. The
Scottish Parliament sets its own income tax rates
and bands, which currently differ significantly from
the rest of the UK for most earners.
The starter rate of 19% applies on earnings between
£12,571 and £14,876.
The basic rate of 20% applies on earnings between
£14,877 and £26,561.
The intermediate rate of 21% applies on earnings
between £26,562 and £43,662.
The higher rate of 42% applies on earnings between
£43,663 and £75,000.
The advanced rate of 45% applies on earnings between
£75,001 and £125,140.
The top rate of 48% applies on all earnings above
£125,140.
For most Scottish taxpayers earning between £26,562
and £43,662, the intermediate rate means they pay
1% more tax than equivalent earners in England and
Wales. For higher earners, the difference is more
significant.
National Insurance rates 2026/27
National Insurance is separate from income tax but
is deducted from your pay in the same way. The rates
for employees in 2026/27 are:
0% on earnings up to £12,570.
8% on earnings between £12,570 and £50,270.
2% on earnings above £50,270.
How income tax and NI work together
On a salary of £40,000 in 2026/27 you would pay
£5,486 in income tax and £2,194 in National Insurance
— a total of £7,680 in deductions.
That leaves a take-home pay of £32,320 per year or
approximately £2,693 per month.
Use the Payslp salary calculator to get the exact
figures for your specific salary, including any
pension contributions or student loan repayments.
Will tax rates change?
Tax bands and rates are set by HMRC each April. The
personal allowance and basic rate threshold have been
frozen since 2021 — a policy known as fiscal drag —
which means more people are being pulled into higher
tax bands each year as wages rise without the
thresholds following.
Always check the latest rates on gov.uk or use the
Payslp calculator, which is updated every April for
the new tax year.