Understanding income tax rates and personal allowances can seem tricky at first.
But if you think about it, it’s not that complicated: the UK operates a progressive tax system, meaning the more you earn, the higher the rate at which you’re taxed.
Read on to learn all about personal tax allowance, income tax bands, inheritance tax, National Insurance contributions and more.
What's new for 2026/27?
While many thresholds are frozen, there are some notable changes this tax year:
- Blind Person’s Allowance: Increased to £3,250 (up from £3,130).
- Scottish income tax thresholds: The Starter and Basic rate band limits have increased by 7.4%, while Higher, Advanced and Top rate thresholds remain frozen.
- Dividend tax rates: From April 2026, dividend tax rates rise: the basic rate increases to 10.75% (from 8.75%) and the higher rate increases to 35.75% (from 33.75%).
- Making Tax Digital (MTD): MTD for Income Tax Self Assessment launches from April 2026 for self-employed workers and landlords with qualifying income above £50,000.
- Personal Allowance and basic rate limit: Both remain frozen at £12,570 and £37,700 respectively, confirmed until at least 2027/28.
Key definitions
Here are some key definitions around income tax rates and personal allowances.
Income tax
Income tax is a tax imposed by the government on an individual’s or entity’s earnings.
These earnings can come from various sources, including wages, salary, pensions, rental income, savings, and investments. The amount of tax an individual or business pays depends on the level of income, with different tax bands and rates applied to different portions of income.
Income tax is collected by the HM Revenue & Customs (HMRC) through mechanisms such as PAYE (Pay As You Earn) for employees and self-assessment for self-employed individuals.
The rates and thresholds can change each tax year, and there are certain allowances and reliefs that may reduce the amount of tax payable.
Personal allowance
Personal allowance is the amount of income an individual in the UK can earn tax-free each tax year.
For the 2026/27 tax year, the standard personal allowance remains frozen at £12,570 — unchanged since 2021/22 and confirmed to stay at this level until at least 2027/28. It is gradually reduced for individuals with an adjusted net income over £100,000, decreasing by £1 for every £2 earned above this threshold. Those earning over £125,140 receive no personal allowance.
HMRC
HMRC is the government department in the UK responsible for collecting taxes, paying benefits, and making sure people and businesses follow tax laws.
They handle things like income tax, VAT, and IHT, as well as provide support for people who need financial help, like through the Universal Credit system.
Income tax
Basic tax bands
For 2026/27, income tax rates and bands in England, Wales and Northern Ireland remain unchanged. The thresholds are frozen until April 2031.
| Tax band | Earnings (after personal allowance) | Tax rate |
|---|---|---|
| Basic rate | Up to £37,700 | 20% |
| Higher rate | From £37,701 to £125,140 | 40% |
| Additional rate | Above £125,140 | 45% |
Scotland has its own income tax rates for non-savings, non-dividend income. For 2026/27, the Scottish Government increased the Starter and Basic rate band thresholds by 7.4%, while keeping the Higher, Advanced and Top rate thresholds frozen.
The income tax rates in Scotland for 2026/27 are:
| Tax band | Earnings (after personal allowance) | Tax rate |
|---|---|---|
| Starter rate | Up to £16,537 | 19% |
| Basic rate | From £16,538 to £29,526 | 20% |
| Intermediate rate | From £29,527 to £43,662 | 21% |
| Advanced rate | From £75,001 to £125,140 | 45% |
| Higher rate | From £43,663 to £75,000 | 45% |
| Top rate | Above £125,140 | 48% |
Note: Scottish taxpayers pay the same UK rates on savings and dividend income.
What about tax codes?
Let’s take a look at the UK tax codes and what they mean:
| Tax code | What they mean | Explanation |
|---|---|---|
| L | Standard personal allowance | You’re entitled to the standard tax-free personal allowance. |
| M | Marriage allowance | You’ve received a transfer of 10% of your partner’s personal allowance. |
| N | Marriage allowance | You’ve transferred 10% of your personal allowance to your partner. |
| T | Other calculations involved | Your tax code includes other calculations (such as company benefits) to determine your personal allowance. |
| 0T | No personal allowance or emergency code | Your personal allowance has been used up, or you’ve started a new job and your employer doesn’t have the details they need to give you a tax code. |
| BR | Basic rate tax code | All your income from this job or pension is taxed at the basic rate (usually used if you’ve got more than one job or pension). |
| D0 | Higher rate tax code | All your income from this job or pension is taxed at the higher rate (usually used if you’ve got more than one job or pension). |
| D1 | Additional rate tax code | All your income from this job or pension is taxed at the additional rate (usually used if you’ve got more than one job or pension). |
| NT | No tax | You’re not paying any tax on this income. |
| W1 | Emergency tax code | Used as an emergency tax code for the current pay period (the “week 1” or “month 1” system), meaning tax is calculated without using your full Personal Allowance. |
| M1 | Emergency tax code | Similar to W1, used as an emergency tax code for the current pay period, typically for those on a month-to-month basis. |
| X | Emergency tax code | Another emergency tax code usually applied when no other tax code is available, and the personal allowance isn’t applied. |
| K | Income exceeding allowance | You have income that isn’t being taxed elsewhere and is worth more than your tax-free Personal Allowance (such as unpaid tax from a previous year or taxable company benefits). |
National Insurance contributions
It isn’t just income tax you need to be aware of — there’s also National Insurance contributions (NICs). Here’s a quick summary:
However, if you’re looking for a quick summary, look no further:
- Class 1: This is paid by employees earning over £242 a week and are under the State Pension age.
- Class 1A or 1B: Class 1A NICs and Class 1B NICs are paid on employees’ expenses or benefits.
- Class 2: Since 6 April 2024, self-employed people with profits over £12,570 are no longer required to pay Class 2 NICs. They can, however, choose to make voluntary contributions if they wish.
- Class 3: This is a voluntary top-up employees can make to fill gaps in their National Insurance record.
- Class 4: Paid by self-employed people earning more than £12,570 a year in profit. For profits between £12,570 and £50,270, a 9% contribution is applied, at over £50,270, 2% is applied.
If you’re interested in a comprehensive overview of NICs, you can read all about them in our National Insurance rates and categories guide.
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Personal allowances
Here is an overview of the key allowance rates for 2026/27:
| Allowance type | Rate |
|---|---|
| Personal allowance | £12,570 |
| Blind person’s allowance | £3,250 |
| Marriage allowance | £1,260 |
Personal allowance
The standard personal allowance is £12,570, meaning you don’t pay tax on earnings up to that amount. This has been frozen since 2021/22 and is confirmed to remain frozen until at least 2027/28.
Blind person’s allowance
The blind person’s allowance (BPA) is a tax-free allowance that reduces your taxable income. It is an extra allowance on top of the standard personal allowance, but you must claim it — it is not applied automatically.
For the 2026/27 tax year, the BPA has increased to £3,250 (up from £3,130 in 2025/26). You don’t need to be completely blind to qualify, but you must meet certain conditions:
- If you live in England or Wales, you need to be registered as severely sight impaired.
- If you live in Scotland or Northern Ireland, your sight must be so poor that it prevents you from working.
Your income level doesn’t affect your entitlement, and there’s no age restriction.
Marriage allowance
Marriage allowance is a tax benefit that allows you to transfer £1,260 of your personal allowance to your husband, wife, or civil partner, potentially reducing their tax bill by up to £252 in the tax year.
You may be eligible for marriage allowance if you meet all of these conditions:
- You’re married or in a civil partnership.
- You either don’t pay income tax or your income is below the personal allowance threshold.
- Your partner pays income tax at the basic rate (see above).
Trading allowance
The trading allowance is a tax exemption that lets individuals earn up to £1,000 a year, without needing to report it to HMRC.
This applies to income from:
- Self-employment.
- Casual services (such as babysitting or gardening).
- Renting out personal equipment (like power tools).
If your total income from these activities exceeds £1,000, or if you have other income over £2,500, you must register for Self Assessment and declare it to HMRC.
Can your personal allowance change?
Yes. Your personal allowance isn’t always a fixed amount—it can change depending on your circumstances.
Here are some of the factors that may affect your personal allowance:
Taxable benefits
If your job comes with perks like a company car, private healthcare, or travel expenses, these are known as benefits in kind (BIK). They’re considered part of your taxable income, which means they can push up your total earnings. When that happens, your personal allowance might be reduced, meaning you start paying tax on more of your income.
Salary sacrifice schemes
A salary sacrifice scheme is where you agree to take a lower salary in exchange for non-cash perks—like extra pension contributions or childcare vouchers.
Since your salary is technically lower, this could reduce your taxable income, meaning you might keep more of your personal allowance and pay less tax overall.
Income thresholds
If your total income exceeds £100,000, your personal allowance decreases by £1 for every £2 earned above this threshold. This creates an effective 60% tax rate on income between £100,000 and £125,140, and means your allowance is eliminated entirely at £125,140.
Value Added Tax
VAT (or Value Added Tax) is a tax added to the price of most goods and services in the UK.
If you’re a business owner, you’ll need to register for VAT if your taxable turnover exceeds £90,000 in a 12-month period. Once registered, you’ll charge VAT on your sales and reclaim the VAT you’ve paid on your purchases.
The VAT rates for 2026/27 remain unchanged:
| % of VAT | What the rate applies to | |
|---|---|---|
| Standard rate | 20 | Most goods and services |
| Reduced rate | 5 | Some goods and services, e.g. children’s car seats and home energy |
| Zero rate | 0 | Zero-rated goods and services, e.g. most food and children’s clothes |
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Payroll Legislation Guide
The facts, figures, thresholds and allowances for 2026/27 spanning tax, National Insurance, pensions, statutory payments and more.
The standard personal allowance for 2026/27 is £12,570. This is the amount of income UK residents can earn each tax year without paying income tax. It has been frozen since 2021/22 and is confirmed to remain at this level until at least 2027/28.
In England, Wales and Northern Ireland, income tax rates for 2026/27 are: 20% on earnings up to £37,700 (basic rate), 40% on earnings from £37,701 to £125,140 (higher rate), and 45% on earnings above £125,140 (additional rate). These apply to income above the personal allowance of £12,570.
The personal allowance is gradually withdrawn once income exceeds £100,000, reducing by £1 for every £2 earned above that threshold. It is eliminated entirely at £125,140. This creates an effective 60% marginal tax rate on income between £100,000 and £125,140.
The marriage allowance for 2026/27 is £1,260. It allows one partner to transfer this portion of their personal allowance to their spouse or civil partner, saving the recipient up to £252 in tax. To qualify, the transferring partner must earn below the personal allowance threshold and the recipient must be a basic rate taxpayer.
The blind person's allowance for 2026/27 is £3,250, an increase from £3,130 in 2025/26. It is an additional tax-free allowance on top of the standard personal allowance, available to those registered as severely sight impaired in England and Wales, or whose sight prevents them from working in Scotland and Northern Ireland.
The tax code 0T means you are receiving no personal allowance. This applies when your income exceeds £125,140, when you start a new job and your employer doesn't yet hold your tax details, or when your allowance has been fully offset against other income. All earnings under this code are taxed from the first pound.
The VAT registration threshold for 2026/27 is £90,000. Businesses whose taxable turnover exceeds this figure in any rolling 12-month period must register for VAT with HMRC. The standard VAT rate is 20%, with a reduced rate of 5% on items such as home energy and children's car seats.
Yes. Benefits in kind (such as a company car, private medical insurance or travel allowances) are added to your taxable income. If they push your total income above £100,000, your personal allowance will be reduced. A salary sacrifice arrangement can work in reverse, lowering taxable income and helping to preserve your full allowance.
