Practical tax information to help you navigate through the tax system and plan tax efficiently by providing you with an overview of the key tax rules.
Throughout this guide you will find a number of tax tips and checklists to help you identify planning opportunities, pitfalls to avoid and areas where you may need to take action. We would be happy to help with advice on your specific position.
The rules, rates and allowances in this guide relate to the 2025/26 tax year and these may be different for other tax years.
A few personal tax essentials
Introduction
Taxation in the UK is administered and regulated by HMRC. Many individuals will have no need to interact with HMRC; for employees income tax is typically deducted at source from earnings before they are paid out by way of Pay as You Earn (PAYE), and other common sources of income, such as savings and dividends, may be covered by allowances such that no tax needs to be paid. Without additional income tax payable to HMRC, these individuals do not need to complete income tax returns.
However, over 12 million taxpayers have a self assessment requirement. They might have income from their own business or receive rent from a property. Alternatively, it may be that their savings or dividend income is significant enough to result in tax being payable. These taxpayers may be asked to complete a self assessment return each year. Other taxpayers may need to complete periodic returns; for example, where they have made a disposal of an asset which is subject to Capital Gains Tax or where they are responsible for collecting and paying the tax on behalf of others such as employers or businesses charging VAT.
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If you have a new source of income or capital gains which could lead to a tax liability you have a responsibility to advise HMRC by 5 October following the tax year. |
The personal allowance
In principle, individuals are entitled to a basic personal allowance before any income tax is paid. This means that many individuals do not pay income tax on the first £12,570 of income they receive, and individuals who have lower levels of income may not need to pay any income tax at all. The personal allowance is fixed until April 2028.
Losing the personal allowance
However, the personal allowance is reduced for individuals with higher levels of income. Where an individual’s adjusted net income (ANI) exceeds £100,000 the personal allowance is reduced by £1 for every £2 of income in excess of that limit. This means that an individual with ANI of £125,140 or more will not be entitled to any personal allowance.
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The withdrawal of the personal allowance means that individuals with income between £100,000 and £125,140 may be subject to an effective tax rate of up to 60% on that income. There may be ways to mitigate this which we can discuss with you. |
Tax rates and allowances
The income tax bands and rates for 2025/26 are determined by where you live in the UK and the type of income you have.
For most UK residents the following tax rates and bands apply:
| Taxable income | Non-savings and savings income rate | Dividend rate |
|---|---|---|
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£0 – £37,700 |
20% |
8.75% |
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£37,701 – £125,140 |
40% |
33.75% |
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Over £125,140 |
45% |
39.35% |
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Taxable income is income in excess of the personal allowance.
Non-savings income is broadly earnings, pensions, trading profits and property income. Scotland and Wales have the autonomy to vary the rates and bands applicable to non-savings income (see below); the rates and bands for savings and dividend income and the personal allowance are set for the UK as a whole. |
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Rates and bands for Scottish and Welsh taxpayers
For 2025/26 the tax rates and bands applicable to Scottish taxpayers on non-savings and non-dividend income are as follows:
| Taxable income | Band name | Rate |
|---|---|---|
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£0 – £2,827 |
Starter |
19% |
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£2,828 – £14,921 |
Basic |
20% |
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£14,922 – £31,092 |
Intermediate |
21% |
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£31,093 – £62,430 |
Higher |
42% |
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£62,431 – £125,140 |
Advanced |
45% |
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Over £125,140 |
Top |
48% |
For 2025/26, the overall tax payable by Welsh taxpayers continues to be the same as English and Northern Irish taxpayers.
Savings and dividends allowances
Individuals may be entitled to the savings allowance (SA), with savings income within the SA taxed at 0%. The amount of SA depends on an individual’s marginal rate of tax (the highest rate of tax to which they are subject). An individual taxed at the basic rate of tax has an SA of £1,000, whereas a higher rate taxpayer is entitled to an SA of £500. Additional rate taxpayers receive no SA.
The dividend allowance (DA) is available to all taxpayers regardless of their marginal tax rate. The DA charges the first £500 of dividends to tax at 0%.
Savings income and dividends received above these allowances are taxed at the rates shown in the table. Savings and dividends within the SA or DA still count towards an individual’s basic or higher rate band and so may affect the rate of tax payable on income in excess of the allowances.
In addition, some taxpayers may be entitled to the starting rate for savings which taxes up to £5,000 of interest income at 0%. However, this rate is not available if non-savings income exceeds £5,000.
Income tax reliefs
In order to encourage charitable giving and saving for the future, income tax relief is available for donations made to charity under gift aid and pension contributions.
Give as you earn and occupational pension schemes
If you make a donation to charity out of your salary or a contribution to an occupational pension scheme, relief is automatically given at your highest marginal tax rate on your salary as the donation or contribution is deducted from your gross salary before income tax is calculated.
Individual donations and personal pension schemes
However, the method in which relief is given is different if you make a gift aid donation personally or contribute to a personal pension scheme.
Basic rate relief is deemed to be given at source. Effectively what this means is that basic rate tax is reclaimed by the charity or pension fund, so you only need to pay £100 for the charity/fund to receive £125.
Relief for higher and additional rate taxpayers is given by extending the bands set out above by the gross amount of the donation (the total receipt by the charity/fund). Following on from the above example, a higher rate taxpayer making a donation of £100 would pay tax at 20% on the first £37,825 of taxable income (being £37,700 plus £125).
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Gift aid donations and personal pension contributions are also deducted from your income to arrive at adjusted net income for the purposes of calculating any reduction in your personal allowance.
If your adjusted net income is between £100,000 and £125,140, you may want to consider making or increasing charitable donations or pension contributions in order to minimise the reduction in the personal allowance. We can help you with these calculations.
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There are specific rules which determine how much tax relief can be obtained for pension contributions which are discussed further in the Tax and your investments section of this guide.
Self assessment timetable
Income Tax and Capital Gains Tax are both assessed for a tax year which runs from 6 April to the following 5 April. The tax year 2025/26 runs from 6 April 2025 to 5 April 2026.
Shortly after the end of the tax year on 5 April a notice to complete a return is usually issued by HMRC if required. Typically the return then needs to be submitted by:
- 31 October following – non-electronic returns (where you have requested a paper return from HMRC or downloaded a blank return).
- 30 December following – returns filed online if you want HMRC to automatically collect tax owed through PAYE.
- 31 January following – returns filed online.
These deadlines may be extended in certain circumstances where the notice to submit a return is issued later than expected.
There is an automatic penalty of £100 for late filing of the return. Further penalties may be due if the filing of the return is significantly delayed. These may run into hundreds of pounds.
HMRC is increasingly emphasising the importance of good records. Failure to maintain adequate records may lead to inaccurate tax returns, which could result in penalties.
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Remember to keep all tax related documents such as interest statements, dividend vouchers, form P60 etc. Place everything in a folder through the year as it is received. Then you can simply hand this to us when we need to prepare your self assessment return. |
Paying the tax
Generally any additional tax payable for a tax year is payable by 31 January following the end of the tax year. Penalties and interest may be due if income tax is paid late.
Some taxpayers will need to pay income tax in instalments known as payments on account. Payments on account are required unless either:
- The amount of tax you owed last year was less than £1,000; or
- More than 80% of the tax owed last year was paid through deduction at source e.g. PAYE.
Two payments on account are required on 31 January in the tax year and 31 July following the tax year. Each payment on account is calculated based on 50% of the income tax and class 4 NIC liability for the previous tax year (less any amounts deducted at source). A balancing payment is due on 31 January following the tax year.
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If you know your income tax is going to be lower than the amount paid for the previous year, you can ask HMRC to reduce your payments on account. Do take care though because if you reduce your payments on account and your tax bill is higher than expected, you will be charged interest on the difference.
We can help you with the calculations of your expected liabilities and any application to HMRC.
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Other taxes impacting individuals
Individuals are not only taxable on the income they receive. You may own assets such as a precious antique, a second home or shares. If such an asset is sold at a profit this may give rise to a liability to Capital Gains Tax (CGT). Details of any capital gains may have to be included on the self assessment return if you receive one; alternatively you can complete a ‘real time’ return. Further information on CGT is provided in the Disposals and CGT section of this guide.
Inheritance Tax (IHT) may be payable on the assets that you give to others in your lifetime or leave behind when you die. With rising house prices, this has become a concern for many more individuals. Find out more in the Preserving your inheritance section of this guide.
National Insurance contributions (NICs) are payable to fund certain benefits and the State Pension. There are different types or classes of NICs and the class payable depends on the individual’s employment status. Class 1 NICs are payable in respect of employed individuals and Class 4 are paid by self-employed individuals. Class 2 and 3 NICs are voluntary contributions which may be paid in certain circumstances. NICs are discussed further in the Running a Business section of this guide.
For information of users: This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.