Personal Tax Rates Explained

Key Tax Rates and Allowances

In this article we have set out the key tax rates and allowances for the 2025/26 tax year, as applicable to persons resident and permanently settled in the UK. It is not an exhaustive list and there may be other factors relating to your situation that are not covered here.

You can find more information about the four main tax categories and the tax position of companies here: What is the Marginal Tax Rate?  

Income Tax

Income tax is calculated for tax years ending on 5 April. The tax year from 6 April 2025 to 5April 2026 is described as 2025/26.

Income tax must be paid on most income received. However, in certain situations, income is classed as exempt and is not taxed. A good example is interest earned on an Individual Savings Account (ISA); this is ‘exempt’ and does not give rise to an income tax liability.

Rates and bands applied to taxable income

After a tax-free ‘personal allowance’ (see below) has been deducted, your remaining income is taxed in bands in 2025/26 as follows:

The rates and bands in 2024/25 were the same as shown for 2025/26.

Income is applied to the bands in the order shown; namely ‘other’, then savings, then dividends.

‘Other income’ means income other than from savings or dividends.  This includes salaries, bonuses, profits made by a sole trader or partner in a business, rental income, pension income and anything else that is not exempt.

Personal allowance

The personal allowance determines how much income you can receive tax-free. 

Where you have income over the personal allowance income limit, for every £2 of income over the limit, you will lose £1 from your personal allowance, until it is reduced to £nil for income levels above £125,140.

Tip: Married couples and civil partners can transfer up to 10% of their personal allowance between themselves each year, as long as neither are higher or additional rate taxpayers. This is known as a ‘marriage allowance’.

All income after the deduction of the personal allowance is ‘taxable income’.

Savings allowances

A savings allowance determines how much savings income you can receive at 0% tax, instead of the usual tax rates for savings income as shown above. The amount of the allowance varies according to your highest income tax rate.

In both tax years, an additional 0% ‘starting rate for savings’ allowance of up to £5,000 is available, but only if less than £5,000 of your basic rate band has been utilised by ‘other income’.

Dividend allowance

A dividend allowance determines how much dividend income you can receive at 0% tax, instead of the usual tax rates for dividend income as shown above.

Individual Savings Accounts (ISAs)

Any savings or dividend income that you earn from qualifying Individual Savings Accounts (ISAs) is exempt from income tax. There are limits on how much you can save into an ISA each year as follows:

Tip: If you are under 40, you can open a Lifetime ISA to save for retirement or buy your first home. The Lifetime ISAs attract a 20% government top-up on the amounts saved each year.

Trading and property allowances

You may be generating some ‘extra income’ outside of your regular income-generating activities (i.e. what is described as undertaking a ‘side hustle’!). Whether or not this is taxable depends on your circumstances. 

If you are selling your own possessions that you no longer require e.g. selling second-hand clothes or old furniture, this is not a taxable transaction, and no tax will be due on the income. 

If you are undertaking a commercial venture with a plan to make profits (e.g. buying stock to resell), tax may be due on the profits made. However, if you are just generating small amounts of trading or property rental income within the following allowances, this is disregarded for tax purposes.

There is also a ‘Rent a Room’ allowance of £7,500 if you let out a room in your main residence. This cannot be combined with the property income allowance.

Tax relief for Venture Capital investments

It is possible to reduce your income tax liability by investing in certain types of shares in companies not listed on a recognised stock exchange. This is part of a package of rules known as ‘Venture Capital Schemes’, designed to help smaller, riskier companies raise capital.

For 2025/26, the limits and reliefs are as follows:

With EIS, the maximum annual investment is doubled to £2million if at least £1million is invested in ‘knowledge-intensive’ companies. Professional advice is essential for both the company raising capital and the individuals considering investing.  

Income tax charges – pensions

Income tax relief is generally given in full for qualifying pension contributions. However, if total contributions (or increases in a defined benefit pension scheme) exceed set limits, an income tax charge will apply to the excess. This charge will be calculated at the highest rate of income tax you pay.

For individuals who have not yet flexibly accessed their pension funds:

Where you have income over the adjusted income limit, for every £2 of excess income, you will have £1 deducted from your annual allowance, until it is reduced to £10,000.

If you do not use all of your annual allowance, you may be able to carry forward the unused part and increase the allowance available to you in a future year.

For individuals who have flexibly accessed their pension funds:

The High-Income Child Benefit Charge

 You may have to pay the High-Income Child Benefit Charge (HICBC) if your income exceeds the threshold below and child benefit is being paid in relation to a child that lives with you, regardless of whether you are a parent of a partnership or long-term relationship, you will only be liable to the HICBC if you are the higher earner of the two of you.

For 2025/26, the HICBC is calculated at 1% of the child benefit received for every £200 of income above the threshold. This means that child benefit is fully clawed back where income exceeds £80,000.

The HICBC does not apply if the child benefit claimant opts out from receiving the payments.

In our next article about tax rates, we take a look at employment tax rates, benefits and expenses. However, please get in touch if you would like to discuss any of the issues raised in this article. 

This summary only an overview of several key UK taxation rates, allowances and reliefs as applicable to persons resident and permanently settled in the UK. No action should be taken without consulting the detailed legislation or seeking professional advice.  Therefore, no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this summary can be accepted by the authors or the firm.