What Are the UK Tax Bands for 2025/26?
The UK tax bands for 2025/26 are the income thresholds that determine how much income tax and National Insurance you pay. They apply to the tax year running from 6 April 2025 to 5 April 2026.
If you run a business, work through a limited company, or are self-employed, these bands directly affect your take-home pay, your dividend strategy, and your overall tax bill. Getting them right means you can plan your drawings, salary, and dividends efficiently.
The key rates are straightforward. The personal allowance is £12,570. The basic rate band runs from £12,571 to £50,270 at 20%. The higher rate band runs from £50,271 to £125,140 at 40%. Income above £125,140 is taxed at 45% [1].
But there is more to it than just those numbers. Your personal allowance can shrink if your income exceeds £100,000. Dividend tax rates are different. National Insurance has its own thresholds. And the Scottish rates are different again.
This guide covers all of it. We will work through each band, each allowance, and each rate. You will know exactly where you stand and what to do next.
Income Tax Bands 2025/26: The Full Breakdown
Personal Allowance
Every UK resident gets a personal allowance. This is the amount of income you can earn before you pay any income tax. For 2025/26, it is £12,570 [1].
This applies to your total income from all sources: employment, self-employment, pensions, rental income, and savings interest. Dividends have their own allowance, which we cover later.
If your adjusted net income is above £100,000, your personal allowance reduces by £1 for every £2 over that threshold [1]. So if your income hits £125,140, your personal allowance is zero [1].
That means someone earning £120,000 has a personal allowance of only £2,570. They pay 40% on most of their income and effectively lose the tax-free slice.
Basic Rate Band
Income between £12,571 and £50,270 is taxed at 20% [1]. This is the basic rate band.
For a sole trader with profits of £45,000, the first £12,570 is tax-free. The remaining £32,430 is taxed at 20%. That gives an income tax bill of £6,486 before any reliefs or deductions.
The basic rate band is the same for England, Wales, and Northern Ireland. Scotland has its own bands, which we cover separately.
Higher Rate Band
Income between £50,271 and £125,140 is taxed at 40% [1]. This is the higher rate band.
If your total income is £80,000, you pay 20% on the slice from £12,571 to £50,270, and 40% on the slice from £50,271 to £80,000. Your total income tax bill is roughly £19,432.
Once your income exceeds £100,000, the personal allowance taper starts. That effectively adds an extra 20% on the income between £100,000 and £125,140, because you lose £1 of allowance for every £2 earned. The marginal rate on that slice is 60% in practice.
Additional Rate Band
Income above £125,140 is taxed at 45% [1]. This is the additional rate band.
At this level, your personal allowance is already zero. Every pound above £125,140 is taxed at 45%. There is no taper, no relief. Just the top rate.
National Insurance Thresholds 2025/26
National Insurance is separate from income tax. It is calculated on your earnings from employment and self-employment, not on investment income or dividends.
The key thresholds for 2025/26 are:
- Primary threshold (employees): £12,570 per year. Earnings below this pay no NI.
- Secondary threshold (employers): £9,100 per year. Employer NI of 13.8% applies above this.
- Upper earnings limit (employees): £50,270 per year. Earnings above this pay 2% employee NI.
- Class 4 (self-employed): profits between £12,570 and £50,270 pay 9%. Profits above £50,270 pay 2%.
- Class 2 (self-employed): abolished from April 2024. No longer payable.
For a limited company director paying themselves a salary, the most efficient approach is often to set the salary at £12,570. This matches the personal allowance and the primary NI threshold. No income tax. No employee NI. But employer NI of 13.8% applies on the amount above £9,100.
If your company qualifies for the Employment Allowance (up to £10,500 per year), that employer NI is covered. Many multi-director limited companies use this structure.
For a sole trader, Class 4 NI is calculated on your trading profits. If your profits are £45,000, you pay 9% on the slice from £12,571 to £45,000. That is £2,918.70 in Class 4 NI.
Dividend Tax Rates 2025/26
Dividends are taxed differently from other income. The rates for 2025/26 are:
- Basic rate taxpayers: 8.75%
- Higher rate taxpayers: 33.75%
- Additional rate taxpayers: 39.35%
The dividend allowance is £500. This means the first £500 of dividend income is tax-free. Above that, dividends are taxed at the rates above.
For a limited company director, dividends are a common way to extract profit tax-efficiently. The company pays corporation tax on its profits. Then the director takes dividends from the post-tax profits. The director pays dividend tax on those dividends.
If your total income (salary plus dividends) keeps you within the basic rate band, your dividend tax rate is 8.75%. That is significantly lower than the 20% income tax rate on salary.
But the dividend allowance is only £500. That is down from £2,000 in 2022/23. It means even small dividend payments now attract tax.
Personal Allowance Taper: The 60% Trap
If your adjusted net income is between £100,000 and £125,140, you lose £1 of personal allowance for every £2 of income above £100,000 [1].
The result is a marginal tax rate of 60% on that slice of income. Here is why.
Suppose your income is £110,000. Your personal allowance is £7,570 (down from £12,570). You pay 40% on the income that would have been tax-free. That extra 20% on the lost allowance adds to the 40% rate, giving 60%.
This trap catches many business owners who have a mix of salary, dividends, and rental income. If your total income pushes above £100,000, you need to plan carefully.
Options include making pension contributions, making charitable donations through Gift Aid, or timing your dividend payments to stay below the threshold.
Scottish Income Tax Bands 2025/26
Scotland sets its own income tax bands. The rates for 2025/26 are:
- Starter rate: 19% on income from £12,571 to £14,876
- Basic rate: 20% on income from £14,877 to £26,561
- Intermediate rate: 21% on income from £26,562 to £43,662
- Higher rate: 42% on income from £43,663 to £75,000
- Advanced rate: 45% on income from £75,001 to £125,140
- Top rate: 48% on income above £125,140
The personal allowance is still £12,570. The taper above £100,000 still applies. But the bands are different, and the rates are higher at the top end.
If you live in Scotland, your dividend tax rates are the same as the rest of the UK. Your savings income is also taxed at UK rates. Only your non-savings, non-dividend income is taxed at Scottish rates.
For a Scottish business owner, the higher rates mean you hit the 42% band at £43,663, not £50,270. That is a significant difference. Planning your drawings to stay within the intermediate rate band (21%) can save you thousands.
Capital Gains Tax Rates 2025/26
Capital gains tax (CGT) applies when you sell an asset that has increased in value. The rates for 2025/26 are:
- Basic rate taxpayers: 18% on residential property, 18% on other assets (non-residential)
- Higher rate taxpayers: 24% on residential property, 24% on other assets
- Business Asset Disposal Relief (BADR): 14% on qualifying gains (up to £1 million lifetime limit)
The annual exempt amount is £3,000. Gains below this are tax-free.
BADR applies when you sell shares in your trading company or your business. You must have held the shares for at least two years. The relief rate is 14% for 2025/26, rising to 18% from 6 April 2026.
For a business owner selling their company, BADR can save tens of thousands in tax. But the £1 million lifetime limit means you cannot use it indefinitely.
If you sell a rental property, the 60-day reporting rule applies. You must report the gain and pay the tax within 60 days of completion. There is no annual wait.
Corporation Tax Rates 2025/26
Corporation tax applies to limited company profits. The rates for 2025/26 are:
- Small profits rate: 19% on profits up to £50,000
- Main rate: 25% on profits above £250,000
- Marginal relief: applies between £50,000 and £250,000
The marginal relief calculation is complex. In simple terms, if your profits are between £50,000 and £250,000, your effective corporation tax rate is somewhere between 19% and 25%. The exact rate depends on your profit level.
For a company with profits of £100,000, the effective rate is roughly 21.5%. For a company with profits of £200,000, it is roughly 23.5%.
If your company has associated companies, the thresholds are divided by the number of associated companies. A company with two associated companies has a small profits threshold of £16,667 (50,000 divided by 3).
Corporation tax is due 9 months and 1 day after the end of your accounting period. For most companies, that is 31 March or 31 December.
VAT Thresholds and Rates 2025/26
VAT is a separate tax on goods and services. The key numbers for 2025/26 are:
- Registration threshold: £90,000 turnover in a rolling 12-month period
- Deregistration threshold: £88,000 turnover
- Standard rate: 20%
- Reduced rate: 5% (domestic fuel, children's car seats, etc.)
- Zero rate: 0% (food, books, children's clothing, etc.)
If your turnover exceeds £90,000, you must register for VAT. You have 30 days from the end of the month in which you exceeded the threshold to register.
Voluntary registration is available if your turnover is below £90,000. Some businesses register voluntarily to reclaim VAT on their purchases or to appear more credible to clients.
The Flat Rate Scheme is still available. It simplifies VAT accounting by applying a fixed percentage to your turnover. The percentage varies by sector. Limited cost traders (those who spend less than 2% of turnover on relevant goods) must use the 16.5% rate.
Making Tax Digital (MTD) for VAT is mandatory for all VAT-registered businesses. You must use compatible software to submit your VAT returns. Spreadsheets are allowed if they are linked to bridging software.
Other Key Allowances and Reliefs 2025/26
Annual Investment Allowance (AIA)
The AIA is £1,000,000 per year. It allows you to claim 100% tax relief on most plant and machinery purchases, up to that limit. It applies to sole traders, partnerships, and limited companies.
If you buy a van for £30,000 for your business, you can deduct the full £30,000 from your profits in the year of purchase. That saves you corporation tax or income tax at your marginal rate.
Full Expensing
Full expensing is available for limited companies only. It gives 100% relief on most main-rate plant and machinery purchases, with no cap. It is effectively a permanent version of the AIA for companies.
If your company buys a piece of machinery for £500,000, you can deduct the full £500,000 from your profits in the year of purchase. That saves corporation tax at 25% on that amount.
Structures and Buildings Allowance
This allowance gives 3% per year relief on the cost of constructing or renovating commercial buildings. It is available for 33.33 years. It applies to both companies and unincorporated businesses.
Research and Development (R&D) Tax Credits
R&D tax credits are available for companies that carry out qualifying research and development. The rules changed from 1 April 2024. The merged scheme applies to most companies. The enhanced R&D Intensive Scheme (ERIS) is available for loss-making companies where R&D spend is at least 30% of total expenditure.
If your company qualifies, you can claim a cash credit or a reduction in your corporation tax bill. The rates depend on whether you are profit-making or loss-making and whether you qualify for ERIS.
We cover R&D in detail on our R&D tax credits page.
Employment Allowance
The Employment Allowance is up to £10,500 per year. It reduces your employer National Insurance bill. It is available to most businesses, but not to companies where the director is the only employee and the company is a personal service company.
If your employer NI bill is £8,000, the Employment Allowance reduces it to zero. You save the full £8,000.
How to Plan Your Drawings and Salary for 2025/26
For a limited company director, the most tax-efficient approach is typically:
- Pay yourself a salary of £12,570 per year. This uses your personal allowance and avoids income tax and employee NI. Employer NI of 13.8% applies on the amount above £9,100, but the Employment Allowance often covers this.
- Take dividends from the company's post-tax profits. Keep your total income (salary plus dividends) within the basic rate band (£50,270) to pay 8.75% dividend tax.
- If your total income exceeds £50,270, the dividend tax rate rises to 33.75%. Consider whether it is worth taking the extra income or leaving it in the company.
- If your total income exceeds £100,000, the personal allowance taper starts. The marginal rate on dividends in this zone is 33.75% plus the effective 20% from the lost allowance. That is 53.75% in practice.
For a sole trader, the approach is different. You pay income tax and Class 4 NI on your profits. There is no dividend option. Your only levers are timing your income, claiming allowable expenses, and making pension contributions.
If your profits are £60,000, you pay 20% on the slice from £12,571 to £50,270, and 40% on the slice from £50,271 to £60,000. Plus Class 4 NI at 9% on the slice from £12,571 to £50,270, and 2% on the slice above £50,270. Your total tax and NI bill is roughly £17,500.
A pension contribution reduces your taxable profits. If you contribute £10,000 to a personal pension, your taxable profits drop to £50,000. You save 40% income tax and 2% Class 4 NI on that £10,000. That is a saving of £4,200.
Making Tax Digital for Income Tax (MTD for ITSA)
Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) is coming. From April 2026, it is mandatory for self-employed individuals and landlords with qualifying income over £50,000. From April 2027, it applies to those with income over £30,000. From April 2028, it applies to those with income over £20,000.
Under MTD for ITSA, you must keep digital records and submit quarterly updates to HMRC using compatible software. You still file a final annual return, but the quarterly updates replace the current self assessment process.
If you are a sole trader or landlord with income above the threshold, you need to prepare now. Choose compatible software. Set up your digital records. Understand the quarterly submission cycle.
We cover MTD in more detail on our VAT and Making Tax Digital blog.
Common Questions About UK Tax Bands 2025/26
What is the personal allowance for 2025/26?
The personal allowance is £12,570. It reduces by £1 for every £2 of income above £100,000. It reaches zero at £125,140 [1].
What are the dividend tax rates for 2025/26?
Basic rate: 8.75%. Higher rate: 33.75%. Additional rate: 39.35%. The dividend allowance is £500.
What is the VAT registration threshold for 2025/26?
The threshold is £90,000 turnover in a rolling 12-month period. The deregistration threshold is £88,000.
What is the corporation tax rate for 2025/26?
19% on profits up to £50,000. 25% on profits above £250,000. Marginal relief applies between £50,000 and £250,000.
What is the capital gains tax annual exempt amount for 2025/26?
£3,000. Gains below this are tax-free.
Next Steps: Plan Your Tax Position for 2025/26
Understanding the UK tax bands for 2025/26 is the first step. The second step is applying them to your specific situation.
If you are a limited company director, review your salary and dividend strategy. Check whether you are in the 60% trap. Consider pension contributions to reduce your income.
If you are a sole trader, review your profit projections. Check whether you are close to the VAT threshold. Consider voluntary registration if it benefits you.
If you are about to incorporate, understand how the tax bands change when you move from self-employment to a limited company. The corporation tax rate is lower than the income tax rate on profits above £50,270. But you pay dividend tax on extraction.
We help business owners with all of this. Our services page covers the full range of what we do. If you want to talk through your specific situation, contact us for a consultation.
You can also use our tax calculators to estimate your tax bill for 2025/26. They are free to use and updated for the current rates.
For a deeper look at specific topics, our limited company tax blog covers director pay, dividends, and corporation tax planning. Our sole trader blog covers self assessment, Class 4 NI, and allowable expenses.
The tax bands are frozen until April 2028 [2]. That means the thresholds are not rising with inflation. More people are being pulled into higher rate bands each year. Planning now saves you money later.
If your turnover crossed the VAT threshold in the last 30 days, register inside the 30-day window. If your profits are approaching £100,000, start planning your pension contributions now. If you are selling your company, check whether you qualify for BADR before the rate rises in April 2026.
Every situation is different. But the principles are the same. Know the bands. Plan your drawings. Use the allowances. And get professional advice when the numbers get complex.
Sources
- gov.uk: Income Tax rates and Personal Allowances - GOV.UK
- taxscape.deloitte.com: Personal tax thresholds frozen until April 2028 - TaxScape | Deloitte