YF AccountingLast updated: 23 July 2026
6 min read
For 2026/27, the personal allowance is £12,570, income tax is charged at 20%, 40% and 45% as your income passes £12,570, £50,270 and £125,140, and employees pay National Insurance at 8% then 2% on top. Dividends, savings and capital gains each have their own rates and allowances — and dividend rates rose in April 2026. This is my one-page reference to all of it, in plain English, with worked examples at £30,000, £60,000 and £130,000. One principle underpins everything: it is not your whole income taxed at one rate, but slices of it at different rates as you move up the bands.
What are the income tax bands for 2026/27?
For England, Wales and Northern Ireland:
| Band | Income | Rate |
|---|---|---|
| Personal allowance | Up to £12,570 | 0% |
| Basic rate | £12,571 – £50,270 | 20% |
| Higher rate | £50,271 – £125,140 | 40% |
| Additional rate | Over £125,140 | 45% |
Each slice is taxed at its own rate. Someone on £60,000 does not pay 40% on everything — only on the £9,730 above £50,270. Crossing a threshold never leaves you worse off overall, whatever the pub economist tells you.
Scotland is different. Scottish taxpayers pay Scottish income tax on earnings, with six bands and rates from 19% to 48%. The personal allowance is the same UK-wide, and savings and dividend income still use the UK rates below — but do not apply the earnings table above if you live in Scotland.
How much National Insurance will I pay?
| Who | 2026/27 rates |
|---|---|
| Employees (Class 1) | 8% on earnings between £12,570 and £50,270; 2% above |
| Self-employed (Class 4) | 6% on profits between £12,570 and £50,270; 2% above |
| Self-employed (Class 2) | Abolished as a compulsory charge — voluntary at £3.65/week if profits are below the £7,105 small profits threshold and you want to protect state pension credits |
| Employers | 15% on each employee’s earnings above £5,000 |
NI is a genuinely separate tax with its own thresholds, which is why a payslip is harder to read than it should be. For a basic-rate employee, the real marginal rate on salary is 28% (20% tax + 8% NI); above £50,270 it is 42%. If you are self-employed, both your income tax and Class 4 NI are collected through Self Assessment — my Self Assessment guide walks through how and when.
How are dividends taxed in 2026/27?
Dividends have their own rates, applied after your other income, with a tax-free dividend allowance of £500. The rates rose on 6 April 2026 — one of the bigger recent changes for company owners:
| Band | 2025/26 rate | 2026/27 rate |
|---|---|---|
| Basic rate | 8.75% | 10.75% |
| Higher rate | 33.75% | 35.75% |
| Additional rate | 39.35% | 39.35% (unchanged) |
Dividends still escape National Insurance, so they remain attractive for owner-directors — just less so than last year. If you pay yourself from your own company, the salary-and-dividend mix deserves an annual review; I run through the 2026/27 numbers in my salary vs dividends guide.
What is the 60% tax trap?
Once income passes £100,000, the personal allowance is withdrawn at £1 for every £2 above that line, vanishing entirely at £125,140. Losing allowance while paying 40% produces an effective 60% tax rate on income between £100,000 and £125,140 — 62% once NI is counted. Nobody designed this on purpose; it is simply what happens when a taper meets a tax band, and it has quietly become one of the highest marginal rates in the system.
If you are in or near this band, pension contributions are the classic escape route: they reduce the income that counts towards the taper, effectively getting 60% relief on that slice. A £10,000 pension contribution at £110,000 of income costs surprisingly little in real terms.
How is savings interest taxed?
Two reliefs cover most savers. The personal savings allowance gives basic-rate taxpayers £1,000 of tax-free interest, higher-rate taxpayers £500, and additional-rate taxpayers nothing. Separately, the starting rate for savings taxes up to £5,000 of interest at 0% — but only if your non-savings income is below £17,570, so it mainly helps pensioners and part-time workers. With interest rates where they are, breaching the PSA is easy now; ISAs remain the clean answer for larger balances.
What are the capital gains tax rates for 2026/27?
| Item | 2026/27 |
|---|---|
| Annual exempt amount | £3,000 |
| Basic-rate taxpayers | 18% |
| Higher/additional-rate taxpayers | 24% |
| Business Asset Disposal Relief | 18% on up to £1m of qualifying lifetime gains |
The 18% and 24% rates now apply to all assets, residential property included. The £3,000 exempt amount is a fraction of the £12,300 it was a few years ago, so far more ordinary investors now have gains to report — worth checking whether you need to file a tax return at all.
Key allowances at a glance
| Allowance | 2026/27 |
|---|---|
| Personal allowance | £12,570 (tapered above £100,000) |
| Dividend allowance | £500 |
| Personal savings allowance | £1,000 / £500 / nil by band |
| CGT annual exempt amount | £3,000 |
| Pension annual allowance | £60,000 (tapered above £260,000 income; £10,000 MPAA once you have flexibly accessed a pension) |
| Trading allowance | £1,000 |
| Property allowance | £1,000 |
Why does my tax keep going up if rates haven’t changed?
Because the thresholds are frozen. The personal allowance and the £50,270 higher-rate threshold are fixed until April 2031, while wages rise with inflation. Every pay rise drags more of your income into tax, or into a higher band, without a single rate changing — the phenomenon known as fiscal drag, and comfortably the biggest stealth tax rise of the decade. Each year the freeze rolls on, more people become higher-rate taxpayers who would never have described themselves that way. Planning around it — pensions, salary sacrifice, using both spouses’ bands — matters more with every passing year.
Worked examples: £30,000, £60,000 and £130,000
Three employees on standard tax codes, salary only, England/Wales/NI rates:
| £30,000 | £60,000 | £130,000 | |
|---|---|---|---|
| Personal allowance | £12,570 | £12,570 | £0 (fully tapered) |
| Income tax | £3,486 | £11,432 | £44,703 |
| Employee NI | £1,394 | £3,211 | £4,611 |
| Take-home pay | £25,120 | £45,357 | £80,686 |
| Effective rate | 16.3% | 24.4% | 37.9% |
The £130,000 earner has lost the entire personal allowance and paid 60% on the £100,000–£125,140 slice along the way. A pension contribution bringing income back towards £100,000 would claw a large chunk of that back — which is why almost every conversation I have with clients at this level starts with pensions.
Frequently asked questions
What is the personal allowance for 2026/27?
£12,570 — the amount you can earn before paying income tax. It has been frozen at this level since 2021 and will stay there until April 2031. It tapers away once income exceeds £100,000, disappearing entirely at £125,140, and most people receive it automatically through tax code 1257L.
At what income do I start paying 40% tax?
Above £50,270 of taxable income in England, Wales and Northern Ireland — and only on the slice above that figure, not your whole income. The threshold is frozen to April 2031, so ordinary pay rises tip more people over it each year. Scottish taxpayers reach comparable rates at lower income levels under their own bands.
Did dividend tax go up in 2026?
Yes. From 6 April 2026 the basic dividend rate rose from 8.75% to 10.75% and the higher rate from 33.75% to 35.75%; the additional rate stayed at 39.35%. The £500 dividend allowance is unchanged. For owner-directors this makes the annual salary-versus-dividend calculation tighter, though dividends still avoid National Insurance.
How much can I earn before paying National Insurance?
Employees pay Class 1 NI on earnings above £12,570 a year — 8% up to £50,270 and 2% beyond. The self-employed pay Class 4 at 6% and 2% on the same thresholds through Self Assessment. Class 2 is no longer compulsory, but can be paid voluntarily at £3.65 a week to protect your state pension record if profits are low.
What is fiscal drag?
Fiscal drag is what happens when tax thresholds stay frozen while incomes rise: each pay rise pulls more of your income into tax or into a higher band, increasing your tax bill without any rate ever changing. With the main UK thresholds frozen until April 2031, it is currently raising more revenue than most headline tax changes.
Do I need to file a Self Assessment tax return?
Usually yes if you are self-employed, a landlord, a company director taking dividends, earning over £150,000, or receiving untaxed income such as savings interest or gains above your allowances. PAYE-only employees generally do not. Note that Making Tax Digital for Income Tax began in April 2026 for the self-employed and landlords with income over £50,000, adding quarterly updates to the annual return.
Need a hand with your personal tax?
I am a Manchester-based, fixed-fee accountant, and this is my bread and butter: checking your position, claiming what you are entitled to, and handling personal tax and Self Assessment from start to finish. Sole traders from £35 a month, limited companies from £50 a month, one point of contact, plain English throughout.
Get in touch or call 0161 531 0959 for a free, no-obligation chat.
This article is general information, not personal tax advice. Rates correct for the 2026/27 tax year at July 2026.
Founder of YF Accounting — a fixed-fee, fully digital accountancy practice in Manchester serving SMEs, sole traders and landlords across the UK. One point of contact, unlimited support, no surprise bills.
Related reading
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Tax on Rental Income: What UK Landlords Pay in 2026/27This article is part of our Self Assessment guide. See the full topic for related reads.