The UK income tax system is progressive: the more you earn above certain thresholds, the higher the rate you pay — but only on the portion of income in each band, not on all of it. Understanding this prevents the common but costly mistake of thinking a pay rise will leave you worse off.
The Four Main Bands (England, Wales & Northern Ireland, 2025/26)
| 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% |
Scotland has its own separate bands — see our dedicated Scottish income tax guide for details.
How Progressive Taxation Actually Works
Suppose you earn £60,000. You do not pay 40% on the entire £60,000. Instead:
- £0 – £12,570: £0 (Personal Allowance, tax-free)
- £12,571 – £50,270: 20% on £37,700 = £7,540
- £50,271 – £60,000: 40% on £9,730 = £3,892
- Total income tax: £11,432 — an effective rate of about 19%, not 40%
What Counts as Taxable Income?
Most income sources are taxable, including:
- Employment income (salary, wages, bonuses, benefits in kind)
- Self-employment profits
- Pension income from private and workplace pensions
- Rental income from property
- Some state benefits (State Pension, for example)
Interest, dividends, and capital gains have their own separate allowances and rates.
The Personal Allowance
The standard Personal Allowance is £12,570 for 2025/26. Everyone resident in the UK for tax purposes gets this allowance. However, it tapers away once income exceeds £100,000 — losing £1 of allowance for every £2 earned above that threshold. This creates an effective 60% marginal rate between £100,000 and £125,140.
PAYE vs Self-Assessment
Most employed workers pay tax automatically through PAYE (Pay As You Earn), where your employer deducts the correct amount each month based on your tax code. If you have multiple income sources, rental income, or are self-employed, you will need to file a Self Assessment tax return each year.
Key Takeaway
A salary increase will never leave you with less take-home pay. Only the additional income above a threshold is taxed at the higher rate. Use our income tax calculator to model your exact position and understand where you stand in the bands.