Tax rates 2025/26

Martin Lewis: This is a beginner's guide to how income tax works. I'm Martin Lewis from MoneySavingExpert.com. Now, this is a thorny, complicated subject, but I want to try and keep it as simple as possible. The first thing to say is most people get a personal allowance. That is how much money you are allowed to earn each year before you pay any tax on it.

The typical number is £12,570. So if you earn less than that and that's total earnings from work and from a pension or interest on your savings, if you earn less than that, it isn't taxed. If you earn more than that. Some of it is taxed. And the ‘some of it’ is crucial. If your allowance is £12,570 and you earn more, it's only the bit above that that you pay 20% tax on.

So let's imagine you earn £13,570. That's £1,000 above the threshold. You pay 20% tax on the £1,000. You pay £200 tax. You don't pay 20% tax on the entire amount you've earned. And that happens every time you go above a threshold. You only pay the increased rate on the amount above the threshold. Why is that important?

Because I've actually had some people who say to me, “They’ve just offered me money, I'm going to get a pay rise. It's going to put me up a tax threshold. I should say no, shouldn't I, because it means I'll take home less?” Incorrect. Earn more: you will take home more. But of course, what that does mean is the rate above £12,570 is 20%.

So every £1 you earn above that you take home 80p after income tax. There’s also National Insurance, but we're keeping it simple, I'm going to ignore that. Now you continue to pay that 20% rate until typically earnings of £50,270 a year. Once you hit that above that, the tax rate is 40%. So then every £1 you earn, 40 pence is taken off.

You take home £0.60. But remember that's only on above the threshold. Now you would think that continues until the tax rate is increased again, which happens in the last tax threshold of £125,000. But it doesn't because something funny happens once you start to earn £100,000, if you're lucky enough to. Once you get to £100,000, you start to lose your personal allowance.

Remember that £12,570 that you can earn tax free? Once you hit £100,000 each pound over you go, you start to lose the personal allowance. And what that effectively means is from earnings from £100,000 to around £125,000, your effective tax rate is 60%. In other words, for every £1 you earn in that threshold, you only take home 40p.

Then finally, we get to the top rate of tax, which is for people generally who earn over £125,140. By the way, all these tax thresholds are England, Wales and Northern Ireland. It's slightly different in Scotland, but the principle’s the same. Above £125,140, the rate is 45%, which means for every £1 you earn you would take home 55p.

So this is a little bit quirky if you think about it. Up to £12,570: no tax. £12,570 to around £50,000: on that bit you pay 20%. Then, above £50,000, up to £100,000: you're paying 40%. From £100,000 up to £125,000: you're effectively paying 60%. And then above £125,000 on money earned above that: you're paying 45% in tax.

Final thought before I go on this... There have not been headline income tax raises for a couple of years because what's actually happened is they've increased income tax revenue via a stealth tax, which is called ‘fiscal drag’. Now, that isn't when chancellors wear rouge. What fiscal drag means is they have frozen all of those thresholds. So let's take the basic personal allowance, the £12,570.

If you were earning under that before and your income is increased due to earnings going up and earnings have gone up and inflation gone up, and it puts you above the threshold and they haven't moved the threshold, suddenly you start paying tax on your earnings, while you haven't before, even though prices have gone up. Inflation means prices have gone up. Which effectively means your earnings are going to be taxed on the same equivalent rate because all prices have gone up,

so with inflation, than they were before. And that has happened to every threshold level. And this fiscal drag, freezing the thresholds, is the way that the current Government, the Labour Government and the past Conservative Government, have increased revenue from income tax without changing the tax rates. Now, that is a very basic one-on-one, 101 rather, on income tax.

I hope it makes sense. There are a lot more complexities and I haven't factored in National Insurance, which is effectively a form of income tax too. But I just wanted to give you a beginner's guide.

If you've answered yes, and you and your partner were born on or after 6 April 1935, then you may be entitled to the marriage tax allowance. This allows couples to transfer a proportion of their personal allowance between them.

For the 2025/26 tax year, the marriage tax allowance is £1,260. This means a potential tax saving of £252.

Alternatively, if one of you was born before 6 April 1935, you can get a different married couple's allowance, which is also available to civil partners. See the Government's married couple's allowance calculator to check your eligibility and see exactly what you'll get.

10% of the married couple's allowance is subtracted from your annual income tax bill. If you were married before 5 December 2005, it is automatically worked out using the husband's salary. For couples married on or after 5 December 2005, it uses the highest earner's salary.

Since April 2016, savings providers have paid you your interest tax-free, and the personal savings allowance (PSA) has come into play. The PSA means every basic-rate taxpayer can earn £1,000 interest a year without paying tax on it. Higher-rate payers get a £500 allowance, and additional-raters don't get an allowance.

There's no change to savings allowances in 2024/25.

If you're a low earner, there's another tax-free allowance you get called the starting rate for savings income. This allows you to earn another £5,000/year in savings interest tax-free if you earn less than £12,570 this tax year. For every pound you earn above this threshold, you lose a pound of savings allowance. For more on this, see our Tax-free savings guide.

The deadline for submitting your self-assessment tax return is normally 31 January. So for the 2024/5 tax year, which ends on 5 April 2025, the deadline is 31 January 2026.

What happens after I've filed my tax return?

Once you've filed your return, you'll get your tax bill. If you did a paper return, you'll receive it by post.

If you did an online return, you have two opportunities to view your bill:

• Before you submit your return (in the 'View my calculation' section).

• After you've submitted your return, in your final tax calculation. Be aware it can take up to 72 hours for this to show on your account.

What you owe will be referred to as the 'balancing payment' on your bill. If you made any payments in a previous year towards the current year's bill, you'll need to deduct them from your balance to work out what you owe.

Can I get help to file my tax return?

If you need help filling in your self-assessment return, you can:

• Appoint someone to help you (such as an accountant or a friend).

• Watch HM Revenue & Customs' (HMRC) videos on how to complete an online tax return.

• Contact it for help online or by telephoning 0300 200 3310.

The national insurance rules if you're self-employed are more complicated than those for employees. Previously you paid two sorts of national insurance contributions (NICs) – class 2 and class 4.

But since April mandatory 'class 2' contributions – which were set at £3.45 a week – have been scrapped. However, those earning less than £6,725 a year can still choose to pay class 2 NICs to gain access to certain benefits, including the state pension. Those earning between £6,725 and £12,570 are entitled to the national insurance credits without having to pay the tax.

NICs are paid on profits you make, which are calculated by deducting your expenses from your self-employment income, above a certain threshold. Most self-employed people pay national insurance through self-assessment.

If you have gaps in your national insurance record, for example because you earned less than the national insurance threshold or were living abroad, it could mean that you don't qualify for the full state pension.

If you want to plug these gaps, you may be able to pay voluntary class 3 NICs. For more information, see our national insurance contributions guide.

If you give or sell assets to your spouse or civil partner, you won't have to pay CGT, unless:

• You separated and didn't live together during that tax year.

• The assets you gave them were sold on via their business.

It's worth giving or selling your assets to your spouse or civil partner if you'll exceed 2025/26's exempt amount of £3,000 but your partner won't. That way, neither of you will need to pay CGT.

If they later sell the asset...

Your spouse or civil partner may have to pay tax on any gain if they later sell the asset.