Overview
Income tax is charged on income above your personal allowance in each tax year. The UK uses tiered bands, so higher earnings are taxed at higher rates on the portion above each threshold. Rates and bands differ in Scotland, and savings and dividend income are treated separately.
Personal allowance and other allowances
- The personal allowance is the amount you can earn tax-free each year.
- Blind person’s allowance: £3,250 (2025/26: £3,130).
- Married couple’s allowance is available where either partner was born before 6 April 1935.
- The personal allowance is reduced by £1 for every £2 of adjusted net income above £100,000.
- Basic rate taxpayers can transfer 10% of their personal allowance to an eligible partner (marriage allowance).
Bands and ordering rules
- Income tax applies to income left after allowances are deducted.
- Income is taxed in a set order, with savings and dividend income taxed last.
- Income covered by the dividend and savings allowances still counts towards total income.
- The 0% starting rate for savings is lost if non-savings income exceeds the starting limit.
- The Scottish Parliament sets rates and limits for Scottish residents on non-savings, non-dividend income.
Who pays and how
- Employees and pensioners usually pay through PAYE, based on their tax code.
- Self-employed people and landlords register with HMRC, file a Self Assessment return and pay by the deadlines.
- Tax is due on wages, profits, pensions, rental income, and interest and dividends above the allowances.
FAQs
Frequently asked questions
Do I pay tax on savings and dividends?
Only if they exceed your savings or dividend allowances.
How is income tax collected?
Through PAYE for employees and pensioners, and Self Assessment for the self-employed, landlords and others with untaxed income.
Can I reduce my tax bill?
Using your full personal allowance, claiming marriage allowance, making pension contributions and claiming other reliefs can all help.