UK tax brackets: at a glance
- What do I need to know? The amount of tax you pay increases with your income, but you’re only charged higher percentages on earnings above each threshold, up to a limit.
- What does it mean for me? When your income exceeds £100,000, your Personal Allowance decreases, meaning you pay even more tax than before.
- Why does it matter? Smart financial planning can help you limit unnecessary tax and grow your savings.
Understanding how UK Income Tax brackets work isn’t just helpful for calculating how much you owe. Learning about income thresholds and the allowances you’re entitled to can influence how you manage your money to preserve more of your wealth.
In this guide, you’ll learn what the UK Income Tax thresholds and brackets are, how much tax you’re likely to pay, and how taxes can influence your savings strategy.
How much can you earn before paying tax?
The amount most people can earn in the UK before paying tax is £12,570. This is known as the Personal Allowance.
The first £12,570 of your salary remains tax-free until you earn over £100,000. At this threshold, your Personal Allowance decreases. For every £2 you earn above £100,000, you lose £1 of your Personal Allowance.
For example, if you earn £120,000 as an annual salary, you’re £20,000 over the threshold. So, you’ll lose £10,000 from your Personal Allowance. By the time you earn £125,000 a year, you no longer have a Personal Allowance at all.
Because of this, HMRC can charge additional-rate taxpayers earning over £125,000 a year as much as 60% in Income Tax. This rule is sometimes referred to as the ‘60% tax trap’.
But it is possible to manage your wealth more effectively if you’re a higher earner. For example, paying more into your pension could bring your taxable income below £100,000. This restores your full Personal Allowance while significantly growing your pension.
What are the UK tax thresholds?
Different UK tax thresholds apply depending on your income. The percentage of tax you pay only changes when your earnings fall within each band.
The tax bands in England, Wales, and Northern Ireland are as follows:
| Tax band | Bracket | Rate of tax |
| Additional | £125,140+ | 45% |
| Higher | £50,271 to £125,139 | 40% |
| Basic | £12,571 to £50,270 | 20% |
| Personal allowance | £0 to £12,570 | 0% |
In Scotland, there are six tax brackets:
| Tax band | Bracket | Rate of tax |
| Top | £125,140+ | 48% |
| Advanced | £75,001 to £125,140 | 45% |
| Higher | £43,663 to £75,000 | 42% |
| Intermediate | £27,492 to £43,662 | 21% |
| Scottish basic | £15,398 to £27,491 | 20% |
| Starter | £12,571 to £15,397 | 19% |
How much tax do you pay in the UK?
UK tax bands act as a sliding scale. You only pay the tax rate that applies to each income bracket.
For example, if you earn £150,000 a year, you don’t pay 45% tax on your whole salary. Your earnings would be taxed as follows:
- You don’t receive a Personal Allowance
- The first £50,270 is taxed at 20%
- Earnings between £50,271 and £125,140 are taxed at 40%
- The rest of your salary, above £125,140, is taxed at 45%
What percentage of tax do I pay?
There are two ways to calculate the percentage of tax you pay on your earnings. These are the marginal rate of tax and the effective rate of tax:
Marginal rate of tax: This is the amount of tax you pay on your next £1 of income. So, if you earn £150,000 a year, your next £1 (your marginal rate) would be taxed at 45%.
Effective rate of tax: This represents the average rate of tax you pay across your total earnings. It’s based on the total amount you earn and the total amount of tax you pay. For example, if you earn £150,000 a year and take your whole salary as income, you pay £48,481.50 in tax. This is 32.3% of your income.
What is the higher tax bracket?
The higher rate is applied to certain taxpayers in the UK.
In England, Wales, and Northern Ireland, it is charged on earnings between £50,271 to £125,140 and taxed at 40%.
In Scotland, the higher rate applies to earnings between £43,663 and £75,000 and is taxed at 42%.
There are circumstances in which you can lose your tax-free allowance as a higher rate taxpayer in England, Wales, and Northern Ireland. But there are some strategies you can use to preserve your wealth:
- ISAs: These accounts offer tax-free interest, dividends, and capital gains on annual deposits up to £20,000. Using your annual allowance every year can grow your wealth over the long term.
- Investment bonds or dividends: You’re only taxed on interest earned on bonds when you withdraw your money or the term expires. Delaying the withdrawal - until retirement or a year where you earn less income - means you could be taxed at a lower rate. You could similarly delay taking company dividends to keep your annual earnings below the additional rate.
- Split income: Married couples and civil partners can legally share income. If your partner’s income is taxed at a lower threshold, you could move some savings or investments into their name to take advantage of their marginal tax rate.
Frequently asked questions about UK Income Tax bands
What is the lowest tax bracket?
The lowest tax bracket in England, Wales, and Northern Ireland is the basic rate. This applies to earnings between £12,571 and £50,270 and is taxed at 20%.
In Scotland, the lowest tax bracket is the starter rate. The starter rate applies to earnings between £12,571 and £15,397 and is taxed at 19%.
How can I reduce my UK tax bill?
It may be possible to reduce your Income Tax bill by increasing pension contributions, delaying income from dividends, or making charitable donations.
If you’re employed, increasing your pension contributions can reduce your gross income, which may put you into a lower tax bracket. If you’re self-employed, you can claim tax relief on pension contributions or charitable donations.
Whether or not you can reduce your Income Tax bill depends on your personal circumstances. If you’re unsure, speak with a financial advisor.
At what age do you stop paying National Insurance?
You stop paying National Insurance on 06 April the year after you reach State Pension age. The State Pension age is regularly reviewed, and it differs depending on your date of birth.
At the time of writing, the State Pension age falls between 66 and 67 years old. This is due to increase to 68 years old in the future.
Find out your State Pension age on the UK Government website.
What is the stealth tax in the UK?
Stealth taxes refer to instances where you pay more tax without a direct tax rise announced by the government.
Relating to Income Tax, this can happen when you simultaneously earn more money while the tax thresholds freeze. For example, if the Personal Allowance is kept at £12,570, and your salary rises slightly to mitigate inflation, you’ll pay more of your income in tax.
Maximise your wealth as a higher earner
The more you earn, the greater your tax bill. This makes it more important to preserve and grow your wealth wisely.
Managing your cash in high-interest, low-risk accounts helps you grow your wealth without losing more of what you earn.
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