UK Income Tax Explained — 2026/27 Guide

Income tax is charged on your earnings above the personal allowance. The UK uses a banded system — you pay higher rates only on the portion of income that falls in each band, not on your whole salary.

Personal Allowance 2026/27

The personal allowance is £12,570 for 2026/27. It has been frozen at this level since April 2021 and is set to remain frozen until at least April 2028 — a stealth tax as wage growth pushes more people into higher bands.

If you earn over £100,000, your allowance is reduced by £1 for every £2 above that threshold. It reaches zero at £125,140, creating an effective 60% marginal tax rate on income between £100,000 and £125,140.

Income Tax Bands — England, Wales & Northern Ireland

Scotland Income Tax Bands 2026/27

Scotland has its own income tax bands set by the Scottish Government. Scottish taxpayers pay different rates on different thresholds:

Real-World Examples

• £26,000 salary: Taxable income = £13,430. Tax = £2,686 at 20%. Monthly take-home roughly £1,840. Full £26,000 breakdown →
• £48,000 salary: Taxable income = £35,430. Tax = £7,086 at 20%. Monthly take-home roughly £3,173. Full £48,000 breakdown →
• £60,000 salary: Enters higher rate band. Tax = £11,432 (20% on £37,700 + 40% on £9,730). Monthly take-home roughly £3,780. Full £60,000 breakdown →

What Counts as Taxable Income?

Income tax applies to:

• Wages and salary from employment
• Self-employment profits
• Most pension income
• Rental income (after allowable expenses)
• Interest and dividends above the relevant allowances
• Benefits in kind above threshold

Pension contributions (salary sacrifice), Gift Aid donations, and professional subscriptions can reduce your taxable income.

How Tax is Collected

For employees, income tax is collected automatically via PAYE (Pay As You Earn). Your employer uses your tax code (e.g., 1257L) to calculate how much to deduct each pay period. If your code is wrong, you could be overpaying or underpaying — check it on your payslip or via your HMRC personal tax account.

Self-employed people pay via Self Assessment, submitting a tax return each year by 31 January.