I know, the word tax hardly evokes feelings of passion and excitement. Some of it is complicated, but some of it really isn’t (promise). This section focuses on personal tax, not company tax, which has different rules.
This guide reflects the 2026/27 tax year (6 April 2026 to 5 April 2027). Rates, bands and allowances can change each tax year, so always check the latest figures on GOV.UK before making decisions. The Income Tax figures here are for England, Wales and Northern Ireland; Scotland has different bands.
Income tax is charged in the UK on your taxable income. This might come from:
If you earn up to £100,000 you are eligible for the personal allowance amount of £12,570.
This is deducted from your earnings before tax is applied, ie you don’t pay tax on the first £12,570 you earn.
If you earn over £100,000, you lose £1 of your personal allowance for every £2 over that £100k mark (see the examples below).
Assuming you get the £12,570 personal allowance, you will pay tax at a basic rate of 20% on earnings from £12,571 to £50,270 (ie a banding of £37,700).
Again assuming you get the £12,570 personal allowance, you will pay a higher rate of 40% on earnings from £50,271 to £125,140.
Any earnings above £125,140 will attract a tax rate of 45%.
Six incomes, from £10,000 to £150,000. Example 5 is highlighted, as it’s where the personal allowance starts to shrink.
| Line | Example 1 | Example 2 | Example 3 | Example 4 | Example 5 | Example 6 |
|---|---|---|---|---|---|---|
| Gross income | 10,000 | 25,000 | 55,000 | 100,000 | 110,000 | 150,000 |
| Personal allowance | (12,570) | (12,570) | (12,570) | (12,570) | (7,570) | – |
| Taxable income | – | 12,430 | 42,430 | 87,430 | 102,430 | 150,000 |
| Split into | ||||||
| Personal allowance | 10,000 | 12,570 | 12,570 | 12,570 | 7,570 | – |
| Basic rate band | – | 12,430 | 37,700 | 37,700 | 37,700 | 37,700 |
| Higher rate band | – | – | 4,730 | 49,730 | 64,730 | 87,440 |
| Additional rate band | – | – | – | – | – | 24,860 |
| Taxable income | – | 12,430 | 42,430 | 87,430 | 102,430 | 150,000 |
| Taxed at | ||||||
| Personal allowance @ 0% | – | – | – | – | – | – |
| Basic rate @ 20% | – | (2,486) | (7,540) | (7,540) | (7,540) | (7,540) |
| Higher rate @ 40% | – | – | (1,892) | (19,892) | (25,892) | (34,976) |
| Additional rate @ 45% | – | – | – | – | – | (11,187) |
| Income tax payable | – | (2,486) | (9,432) | (27,432) | (33,432) | (53,703) |
| Net income | 10,000 | 22,514 | 45,568 | 72,568 | 76,568 | 96,297 |
In Example 5, gross income is £10,000 over the £100,000 threshold:
These workings are before National Insurance is deducted, and don’t take into account pension contributions. See How do Pensions impact Tax? below.
Scotland sets its own Income Tax bands and rates for earnings, pensions and other non-savings, non-dividend income. The Personal Allowance is the same £12,570, but the bands above it are different. The worked examples above use the England, Wales and Northern Ireland bands, so they don’t apply to Scottish taxpayers. The Scottish bands for 2026/27 are:
| Band | Taxable income | Rate |
|---|---|---|
| Personal Allowance | Up to £12,570 | 0% |
| Starter rate | £12,571 to £16,537 | 19% |
| Basic rate | £16,538 to £29,526 | 20% |
| Intermediate rate | £29,527 to £43,662 | 21% |
| Higher rate | £43,663 to £75,000 | 42% |
| Advanced rate | £75,001 to £125,140 | 45% |
| Top rate | Over £125,140 | 48% |
Savings and dividend income is taxed at the UK-wide rates. See GOV.UK: Scottish Income Tax for the latest bands.
Useful links: GOV.UK income tax (they’re the ones that tax us!) · Money Saving Expert income tax calculator
National Insurance (“NI”) in the UK funds certain benefits and the state pension. An individual pays NI contributions to be eligible for these benefits (if needed) and the state pension.
Every person has a unique National Insurance number. Make sure you keep yours safe!
Much like Income Tax, National Insurance is calculated based on your level of earnings and your employment status (employed vs self‑employed).
The exact rates and thresholds change regularly, so rather than memorising numbers, it’s easier to use a calculator. Taxfix has an online calculator where you can input your earnings to see how your NI is worked out.
For 2026/27, employees (Class 1, category A) pay 8% on earnings between about £12,570 and £50,270 a year (£242 to £967 a week) and 2% on anything above that. Self-employed people pay different classes of NI: see GOV.UK’s self-employed NI rates.
The key idea:
You pay nothing on income below it.
You then pay a main rate on this band.
You pay a smaller top rate on anything over it.
The main thing to note is that to get the full state pension you usually need 35 qualifying years* of NI contributions or credits, and a minimum of 10 years to get any new state pension. Your own record can differ, for example if you were contracted out before 2016. See Pensions for more.
*A qualifying year is a tax year (6 April to the following 5 April) in which you paid, or were credited with, enough NI contributions, as per the workings above. Check your NI record to see how many you currently have.
Useful links: GOV.UK National Insurance (the ones we’re paying NI to!) · Check your state pension age
Capital gains tax (or “CGT”) is tax on the profit when you sell (or ‘dispose of’) something (an ‘asset’) that’s increased in value.
The gain is what you are taxed on, and this may not simply equal the profit made (see below).
For CGT, you dispose of an asset when you:
Hand it over for money.
Or transfer it to someone else.
Exchange it for something else.
For example an insurance payout if it’s damaged.
The key exemptions to CGT, ie the things you don’t need to worry about, are:
Your main (residential) home.
No CGT when you sell it.
Personal possessions worth less than £6,000.
For most people this covers the main assets you own and are likely to sell. Phew!
Some key things to know:
| Asset | Basic rate taxpayer | Higher rate taxpayer |
|---|---|---|
| Personal possessions and other assets, such as shares | 18% | 24% |
| Property (not your main home) | 18% | 24% |
If a gain takes you over the basic rate band, the part above the band is taxed at the higher rate.
Notice that the profit doesn’t always equal the gain. There is the annual allowance to consider first, plus other allowable expenses you can deduct:
Useful links: GOV.UK capital gains tax (for the latest rates) · Work out your gain on a property · Work out your gain on a personal possession · Taxfix CGT calculator
When you make a pension contribution (eg each month via your payslip), it reduces the amount of income on which you are taxed.
Pension contributions are directly linked to your taxable income. Whatever you pay towards your pension now, you are not taxed on.
Then, when you withdraw the pension later (in retirement), you are taxed on your pension income as per the Income Tax section above.
You’re a higher rate taxpayer, so you’re taxed at 40%.
You’re likely to be able to withdraw at a basic rate of 20%.
Let’s look at two examples of a current higher rate taxpayer, each with and without a 5% pension contribution.
| Example 1 | Example 2 | |||
|---|---|---|---|---|
| Line | 1ano pension | 1b5% pension | 2ano pension | 2b5% pension |
| Gross income | 55,000 | 55,000 | 110,000 | 110,000 |
| Pension contribution at 5% | – | (2,750) | – | (5,500) |
| Gross income net of pension | 55,000 | 52,250 | 110,000 | 104,500 |
| Personal allowance | (12,570) | (12,570) | (7,570) | (10,320) |
| Taxable income | 42,430 | 39,680 | 102,430 | 94,180 |
| Split into | ||||
| Personal allowance | 12,570 | 12,570 | 7,570 | 10,320 |
| Basic rate band | 37,700 | 37,700 | 37,700 | 37,700 |
| Higher rate band | 4,730 | 1,980 | 64,730 | 56,480 |
| Additional rate band | – | – | – | – |
| Taxable income | 42,430 | 39,680 | 102,430 | 94,180 |
| Taxed at | ||||
| Personal allowance @ 0% | – | – | – | – |
| Basic rate @ 20% | (7,540) | (7,540) | (7,540) | (7,540) |
| Higher rate @ 40% | (1,892) | (792) | (25,892) | (22,592) |
| Additional rate @ 45% | – | – | – | – |
| Income tax payable | (9,432) | (8,332) | (33,432) | (30,132) |
| Net income | 45,568 | 43,918 | 76,568 | 74,368 |
| Paid into pension | – | 2,750 | – | 5,500 |
| Net income + pension pot | 45,568 | 46,668 | 76,568 | 79,868 |
| Pension v no pension | – | 1,100 | – | 3,300 |
The other benefit you get with pensions is that your employer is legally required to contribute a minimum amount to your pension pot.
Under auto‑enrolment rules, the current minimum is usually 8% of qualifying earnings in total, with at least 3% coming from your employer and the rest from you (including tax relief).
Some employers are more generous and will match or exceed your contributions. Check what structure yours offers, and whether they’ll match higher contributions from you.
Useful links: Money Saving Expert’s income tax calculator also lets you input your pension contribution. · See more in the Pensions section, and Investments for ISAs, another tax-efficient wrapper.
A one-to-one session can help you make sense of your own tax position and where a pension fits in.