UK Personal Allowance and Income Tax Guide for 2026/27
How the UK personal allowance, basic and higher rate bands work — and what changes when income passes £100,000.
UK Income Tax in Plain English
UK employees pay income tax on earnings above the personal allowance through PAYE — deducted before salary hits the bank. Scotland has different bands; this guide covers England, Wales, and Northern Ireland unless noted.
Three concepts matter: personal allowance (tax-free slice), marginal rate on the next pound, and effective rate across all income.
Personal Allowance and Taper
For 2026/27 planning, the standard personal allowance is £12,570. You pay 0% on income within it (savings and dividend allowances are separate).
£100,000 trap: Allowance reduces by £1 for every £2 earned above £100,000 until gone near £125,140. Effective marginal rate in that zone can exceed 60% when accounting for lost allowance — pension contributions and salary sacrifice shine here.
Main Tax Bands (England, Wales, NI)
| Band | Taxable income (approx.) | Rate |
|---|---|---|
| --- | --- | ---: |
| Personal allowance | £0 – £12,570 | 0% |
| Basic rate | £12,571 – £50,270 | 20% |
| Higher rate | £50,271 – £125,140 | 40% |
| Additional rate | over £125,140 | 45% |
Dividends and savings have separate rate schedules and allowances.
Salary Sacrifice and Pension Relief
Pension contributions via salary sacrifice reduce taxable income and National Insurance — powerful above higher-rate threshold. Contributing enough to stay under £50,270 basic-rate ceiling saves 40% vs. 20% on marginal pounds.
Compare gross packages with our salary to hourly converter and rough tax estimates for side gigs.
Self-Assessment When PAYE Is Not Enough
Self-employed, landlords, high dividend earners, and £100k+ with complex income file Self Assessment. Payments on account January and July — budget sinking funds accordingly.
ISAs and Tax Wrappers
Stocks and Shares ISA gains do not use personal allowance or CGT — see our ISA basics guide. Still fund ISA after workplace pension if employer match exists.
National Insurance (Brief)
NI is separate from income tax — employee Class 1 on earned income, rates and thresholds change in Budgets. Total marginal "tax" includes NI; use HMRC calculators for precision.
Planning Moves
Just below higher rate — Pension top-up before 5 April.
Child benefit charge — Income over £60,000 tapers child benefit; pension reduces adjusted net income.
Marriage allowance — Transfer unused allowance if partner is basic rate and you earn below allowance.
Model US comparisons for expats separately — this guide is UK-focused.
FiscalWise Tool Tie-In
US readers comparing systems can use tax bracket calculator for federal brackets; UK earners should pair this article with HMRC official tables each tax year.
Common Mistakes
Ignoring allowance taper — Bonus pushing £105k may cost more than face value.
Missing coding notices — Wrong emergency tax code after job change; fix via HMRC.
Not claiming WFH / professional subs — Where eligible on Self Assessment.
UK tax looks simpler than US until you hit £100k, dividends, or side business income. Know your bands, sacrifice salary to pension when marginal rate jumps, and file on time when PAYE is not enough.
Topics covered
- UK tax
- personal allowance
- income tax
- higher rate
