How UK Income Tax works in 2026/27

The Personal Allowance: your tax-free slice

Everyone in the UK can earn a certain amount each year before paying any Income Tax at all. This is called the Personal Allowance, and for the 2026/27 tax year it is £12,570. Earn below that in a year and, in most cases, you pay no Income Tax whatsoever.

The Personal Allowance has been frozen at £12,570 since 2021 and is set to stay there until at least April 2031. Because wages tend to rise over time while the allowance stays still, more people gradually get pulled into paying tax, or into higher tax bands, an effect often called "fiscal drag".

One important wrinkle: if you earn more than £100,000 a year, your Personal Allowance starts to shrink. For every £2 you earn above £100,000, you lose £1 of allowance, and it disappears entirely once you reach £125,140. This creates an unusually high effective tax rate in that band, which we come back to below.

The tax bands: you only pay the higher rate on part of your income

The most common misunderstanding about Income Tax is the belief that moving into a higher tax band means all of your income is taxed at the higher rate. That is not how it works. The UK uses a banded (or marginal) system, where each slice of your income is taxed at its own rate.

For England, Wales and Northern Ireland in 2026/27, the bands are: 0% on income up to £12,570 (the Personal Allowance); 20% (the basic rate) on income from £12,571 to £50,270; 40% (the higher rate) from £50,271 to £125,140; and 45% (the additional rate) above £125,140.

So if you earn £60,000, you do not pay 40% on the whole lot. You pay nothing on the first £12,570, 20% on the next £37,700, and 40% only on the roughly £9,730 that sits above £50,270. This is why a pay rise that tips you into a higher band never leaves you worse off overall; only the money above the threshold is taxed more.

Scotland sets its own Income Tax bands, which have more rates and different thresholds, so Scottish taxpayers will see different figures for the tax portion of their pay.

National Insurance: the other big deduction

Alongside Income Tax, employees pay Class 1 National Insurance contributions (NICs). For 2026/27, employees pay 8% on earnings between £12,570 and £50,270 a year, and 2% on anything above that. Like Income Tax, it is banded, so the 2% rate only applies to the portion above the upper limit.

National Insurance builds your entitlement to certain benefits, most importantly the State Pension. It is deducted automatically through PAYE if you are employed, so it appears on your payslip as a separate line from Income Tax.

The self-employed pay a different form, Class 4 NICs, on their profits, charged at 6% between £12,570 and £50,270 and 2% above. Most no longer pay the old flat-rate Class 2.

The £100,000 "60% tax trap"

Because the Personal Allowance is withdrawn between £100,000 and £125,140, income in that band is taxed unusually heavily. Each extra £1 you earn is taxed at 40%, and also removes 50p of tax-free allowance, which is itself then taxed. The result is an effective marginal rate of around 60% on that slice of income.

This is why higher earners often pay extra into a pension when their income creeps above £100,000: pension contributions reduce the income that counts towards the taper, which can restore some or all of the lost allowance. It is one of the few situations where a contribution can effectively be worth 60% relief.

Putting it together: from gross to take-home

Your take-home pay is your gross salary minus Income Tax, National Insurance, and any other deductions such as pension contributions or student loan repayments. Because tax and NI are banded, the percentage you keep falls gradually as you earn more, rather than dropping sharply at any one point.

The easiest way to see your own numbers is to use a calculator that applies the current bands for you. Our income tax calculator shows the tax due in each band separately, and the salary calculator adds pension and student loan to give a full take-home figure.