UK Tax FAQ 2025/26

The personal allowance is the amount of income you can earn each year before you start paying income tax. For 2025/26 it is £12,570. It has been frozen at this level since 2021/22 and is expected to remain frozen until at least 2027/28.

For England, Wales and Northern Ireland in 2025/26: 0% on the first £12,570 (Personal Allowance), 20% on £12,571–£50,270 (Basic rate), 40% on £50,271–£125,140 (Higher rate), and 45% on income over £125,140 (Additional rate). Scotland has six separate bands ranging from 19% to 48%.

Income tax is calculated progressively — you only pay each rate on the portion of income that falls within that band. For example, on a £35,000 salary you pay 0% on the first £12,570, then 20% on the remaining £22,430. You do not pay 20% on the entire £35,000.

Once your adjusted net income exceeds £100,000, your personal allowance is reduced by £1 for every £2 you earn above that threshold. It is completely withdrawn at £125,140. This creates an effective marginal tax rate of around 60% (62% including NI) in the taper zone — known as the 60% tax trap.

Scotland sets its own income tax rates. For 2025/26 there are six bands: Starter (19%), Basic (20%), Intermediate (21%), Higher (42%), Advanced (45%), and Top (48%). Scottish taxpayers generally pay more tax on incomes above around £28,000 compared to the rest of the UK. Tax codes start with an 'S' prefix.

You must file a self-assessment if you are self-employed with income over £1,000, earn over £150,000, have untaxed income (e.g. rental income, dividends above the allowance), need to claim tax relief on pension contributions, or receive child benefit and your income is over £60,000. The deadline is 31 January following the end of the tax year.

PAYE (Pay As You Earn) is the system HMRC uses to collect income tax and National Insurance from employees. Your employer deducts tax from your wages before paying you, based on your tax code. Most employees pay the correct amount of tax through PAYE and do not need to file a tax return.

If your employer requires you to work from home, you can claim tax relief on additional household costs. The flat rate is £6 per week (£312 per year) without needing receipts. Basic rate taxpayers save £62.40 per year; higher rate taxpayers save £124.80. You claim through HMRC online or via self-assessment.

National Insurance (NI) is a tax on earnings and self-employed profits that funds the state pension, NHS, and other benefits. Employees pay Class 1 NI, self-employed pay Class 2 and Class 4, and employers also pay NI on top of your salary. Your NI contributions build up your entitlement to state pension and certain benefits.

For 2025/26, employees pay 8% on earnings between £12,570 and £50,270, then 2% on earnings above £50,270. Your employer pays 15% on earnings above £5,000. Self-employed pay Class 2 NI at £3.45/week (if profits exceed £12,570) and Class 4 at 6% on profits between £12,570 and £50,270, then 2% above that.

Class 1 is paid by employees (8%/2%) and employers (15%). Class 2 is a flat weekly payment for the self-employed (£3.45/week). Class 3 is voluntary contributions to fill gaps in your NI record (£17.45/week). Class 4 is profit-based NI for the self-employed (6%/2%).

No. Once you reach state pension age you stop paying employee NI contributions (Class 1), even if you continue working. Self-employed people also stop paying Class 2 and Class 4 NI. However, you still pay income tax on earnings above the personal allowance.

You need 35 qualifying years of National Insurance contributions to receive the full new state pension (£230.25/week in 2025/26). You need at least 10 qualifying years to get any state pension at all. You can check your NI record and fill gaps by paying voluntary Class 3 contributions.

Stamp duty (officially Stamp Duty Land Tax or SDLT in England and Northern Ireland) is a tax you pay when buying property or land over a certain price. The rate is progressive, ranging from 0% to 12% depending on the purchase price. The first £125,000 is tax-free for most buyers.

First-time buyers pay no stamp duty on the first £300,000 of a property priced up to £500,000 (until 31 March 2025 the threshold was £425,000). Above £300,000, they pay 5% on the portion up to £500,000. If the property costs more than £500,000, standard rates apply with no first-time buyer relief.

SDLT (Stamp Duty Land Tax) applies in England and Northern Ireland. LBTT (Land and Buildings Transaction Tax) applies in Scotland with different rates and bands. LTT (Land Transaction Tax) applies in Wales, also with its own rates. All three are progressive taxes on property purchases but with different thresholds.

No. You do not pay stamp duty on property you inherit. Stamp duty is only payable on property purchases. However, if you already own a property (including inherited ones) and buy another, the additional property surcharge may apply to the new purchase.

If you buy an additional residential property (e.g. a buy-to-let or second home) you pay a 5% surcharge on top of the standard SDLT rates. This applies to the entire purchase price if the property costs more than £40,000. Companies buying residential property also pay this surcharge.

When you contribute to a pension, you receive tax relief at your marginal rate. Basic rate relief (20%) is added automatically — a £100 contribution only costs you £80. Higher rate taxpayers can claim an additional 20% (total 40%) via self-assessment. Additional rate taxpayers can claim 45% relief. This makes pensions one of the most tax-efficient ways to save.

The annual allowance is the maximum you can contribute to pensions each year while receiving tax relief. For 2025/26 it is £60,000 or 100% of your earnings (whichever is lower). For high earners above £260,000, the allowance tapers down to a minimum of £10,000. Exceeding the allowance triggers a tax charge.

Salary sacrifice is an arrangement where you agree to reduce your gross salary in exchange for employer pension contributions. Because the sacrifice happens before tax and NI, you save both income tax and National Insurance — making it more efficient than personal contributions. Your employer also saves on employer NI.

Yes. If you have not used your full £60,000 annual allowance in the previous three tax years, you can carry forward the unused amount and make larger contributions this year. You must have been a member of a registered pension scheme in those years. This is useful for making one-off lump sum contributions.

You pay capital gains tax (CGT) when you sell or dispose of an asset that has increased in value — such as shares, cryptocurrency, or a second property. You do not pay CGT on your main home (principal private residence relief), ISA investments, or assets given to your spouse. CGT rates are 10%/20% for most assets or 18%/24% for residential property.

The capital gains tax annual exempt amount for 2025/26 is £3,000. This means the first £3,000 of gains in each tax year are tax-free. It was reduced from £6,000 in 2023/24 and from £12,300 in 2022/23. You cannot carry forward unused exemption to future years.

Inheritance tax (IHT) is charged at 40% on estates valued above the nil rate band of £325,000. If you leave your home to direct descendants, the residence nil rate band adds £175,000, giving an effective threshold of £500,000. Married couples and civil partners can transfer unused allowances, potentially giving a combined threshold of £1 million.

The residence nil rate band (RNRB) is an additional £175,000 IHT allowance available when you leave your home to direct descendants (children, grandchildren). Combined with the standard nil rate band of £325,000, the total IHT-free threshold is £500,000 per person. The RNRB tapers by £1 for every £2 the estate exceeds £2 million.

Student loan repayments are deducted automatically through PAYE once your income exceeds the repayment threshold for your plan. You repay a percentage of income above the threshold — typically 9% for Plans 1, 2, 4, and 5, or 6% for Postgraduate loans. Repayments stop when the loan is repaid in full or written off after a set period.

Plan 1 applies if you started before September 2012 (England/Wales) or studied in Northern Ireland. Plan 2 applies if you started after September 2012 in England/Wales. Plan 4 is for Scottish students. Plan 5 applies from September 2023 onwards. Your plan determines the repayment threshold and interest rate. Check your payslip or SLC account.

Marriage Allowance lets you transfer £1,260 of your Personal Allowance to your spouse or civil partner if you earn less than £12,570 and they are a basic rate taxpayer. This reduces their tax bill by up to £252 per year. You can backdate claims by up to four years. It is not available to higher or additional rate taxpayers.

Your tax code appears on your payslip, P60, or P45. You can also check it via your HMRC Personal Tax Account online. The most common code is 1257L, which gives you the standard £12,570 personal allowance. Scottish taxpayers have an 'S' prefix (S1257L). If your code seems wrong, contact HMRC — an incorrect code means you could be over- or under-paying tax.

The trading allowance is a £1,000 tax-free allowance for self-employed income. If your total trading income is under £1,000, you do not need to register as self-employed or file a tax return. If your income exceeds £1,000, you can choose to deduct the £1,000 allowance instead of claiming actual expenses.

The dividend allowance for 2025/26 is £500 — down from £1,000 in 2023/24 and £2,000 in 2022/23. Dividends within this allowance are tax-free. Above the allowance, dividends are taxed at 8.75% (basic rate), 33.75% (higher rate), or 39.35% (additional rate). The allowance applies to all dividend income regardless of source.