Income Tax Bands and Thresholds
The basic tax rate stands at 20%, covering income up to £37,700 for the 2025/26 tax year. This establishes a 40% tax rate threshold at £50,270 for individuals who qualify for the full personal allowance.
This £37,700 band for the basic rate will remain unchanged until April 2028. Likewise, the Upper Earnings Limit and Upper Profits Limit for NICs will stay pegged to the higher rate threshold of £50,270 throughout these years. From April 2028 onward, the government plans to adjust these limits based on inflation.
In 2025/26, the income threshold for the additional 45% rate will be £125,140. The additional rate will apply to non-savings and non-dividend income for taxpayers in England, Wales, and Northern Ireland, whereas the rate will affect savings and dividend income across the entire UK.
Scottish residents
Under the Scottish tax system, income from employment, self-employment, and property is taxed at different rates than in other parts of the UK, excluding income from savings and dividends.
With the addition of a new 45% rate in the 2024/25 tax year, there are now six tax rates in Scotland, ranging from 19% up to 48%. The Scottish Budget on 4 December 2024 will confirm the tax rates and bands for 2025/26. However, Scottish residents receive the same personal allowance as those in the rest of the UK.
Welsh residents
From April 2019, the Welsh Government gained the power to adjust income tax rates for Welsh residents, excluding tax on savings and dividends. For the 2024/25 tax year, the rates for Welsh taxpayers will match those applied in England and Northern Ireland. The Welsh tax rates for 2025/26 are set to be disclosed in the Welsh Budget on 10 December 2024.
Personal Tax Allowance
The personal tax-free allowance for Income Tax remains fixed at £12,570 until April 2028, with plans for it to rise in line with inflation from that point onwards.
For individuals with an ‘adjusted net income’ exceeding £100,000, the personal allowance is gradually reduced. Specifically, for every £2 earned above £100,000, the allowance decreases by £1. Consequently, those whose adjusted net income surpasses £125,140 will not be eligible for any personal allowance.
Additionally, the government has plans to increase the married couple’s allowance and blind person’s allowance starting from the 2025/26 tax year.
Martial tax allowance
The marriage allowance enables eligible couples to transfer a portion of their personal tax-free allowance, specifically £1,260, to their spouse or civil partner.
Savings and Interest Tax
Income from savings, such as bank interest, is taxed according to the individual’s tax rate. The Savings Allowance is set at £1,000 for basic-rate taxpayers, £500 for higher-rate taxpayers, and none for additional-rate taxpayers.
Even though savings within the allowance are still considered when determining the overall tax band, they can affect the tax rate applied to savings above the allowance.
Certain individuals may be eligible for a 0% tax rate on savings up to £5,000, but this option is unavailable if their taxable non-savings income exceeds £5,000.
Dividends Taxation
The first £500 of dividends is tax-free (Dividend Allowance) for 2025/26. Dividends above this are taxed at 8.75% for basic-rate, 33.75% for higher-rate, and 39.35% for additional-rate taxpayers. Corporation tax on overdrawn loan accounts remains at 33.75%. Dividends count toward the tax band, affecting the rate on amounts above the allowance.
Pension Tax Limits
For 2025/26, the Annual Allowance (AA) is £60,000. If “threshold income” exceeds £200,000, the AA is reduced by £1 for every £2 of “adjusted income” over £260,000, with a minimum AA of £10,000. The Lump Sum Allowance is £268,275, and the Lump Sum and Death Benefit Allowance is £1,073,100, both for tax-free lump sums in specific situations.
Non-Domiciled Residents in the UK
From 6 April 2025, the tax system for non-UK domiciled individuals will shift from a domicile-based remittance system to a residence-based approach. New arrivals to the UK will receive a four-year exemption on foreign income and gains, provided they haven’t been UK residents for the previous ten years.
For Capital Gains Tax, current and former remittance basis users can rebase foreign assets to their 2017 value upon sale. A Temporary Repatriation Facility will allow prior remittance users to bring in foreign income at a reduced rate for three years, starting at 12%.
Inheritance Tax will also switch to a residence-based system, affecting non-UK assets in IHT scope. Overseas Workday Relief will extend to four years, capped at £300,000 or 30% of total employment income.
