Glossary · UK
What is Income Tax?
The tax you pay on most income above your Personal Allowance, charged in bands at rising rates.
Full Definition
Income Tax is the UK tax on earnings, pensions, most benefits, rental profit and some savings and dividend income. The first slice of income (the Personal Allowance, GBP 12,570 in 2026/27) is tax-free for most people. Income above it is taxed in bands: in England, Wales and Northern Ireland the basic rate is 20% up to GBP 50,270 of taxable income (GBP 37,700 above the allowance), the higher rate 40% to GBP 125,140 and the additional rate 45% above that. Scotland sets its own bands and rates. Tax is collected through PAYE for employees or Self Assessment for the self-employed and those with untaxed income.
How Income Tax is calculated
Taxable income = max(0, Income - Personal Allowance)
Tax = sum over bands of (income in band x band rate)- 20%
- Basic rate, on taxable income up to GBP 37,700 (2026/27, rUK).
- 40%
- Higher rate, on taxable income from GBP 37,700 to GBP 125,140.
- 45%
- Additional rate, on taxable income above GBP 125,140.
Worked example: On GBP 60,000 in England: taxable income = 60,000 - 12,570 = 47,430; tax = 37,700 x 20% + 9,730 x 40% = 7,540 + 3,892 = GBP 11,432.