UK Tax rates, tax thresholds, tax bands, and tax allowances for the 2025/26 tax year

PHS Team

29 May, 2025

Tax rates and allowances can change each year in the UK. Whether you're earning more after a promotion, starting a family, launching your own business, or receiving an inheritance, the way you’re taxed can shift significantly. Understanding how the UK tax system applies to you is key to making informed financial decisions and avoiding unexpected bills.

Each tax year, the UK Government updates various income thresholds, personal allowances, and tax bands. While some figures may remain frozen, others change due to inflation, fiscal policy, or economic strategy. 

In this blog, we break down the key tax rates, thresholds, bands, and allowances for both the 2025/26 and 2024/25 tax years. Whether you're employed, self-employed, a landlord, or managing a company, we’ll guide you through everything you need to know, from Income Tax and National Insurance to Capital Gains Tax and the Personal Allowance.

What Are Tax Rates, Thresholds, Bands, and Allowances?

Understanding the structure of the UK tax system starts with four key concepts: tax rates, tax thresholds, tax bands, and tax allowances. Each plays a crucial role in determining how much tax you pay and on which portion of your income.

Tax Rates

A tax rate is the percentage of your income that you’re required to pay in tax. In the UK, income is taxed at different rates depending on how much you earn. These rates are set by the government and may vary across different types of tax, such as Income Tax, Capital Gains Tax, and Dividend Tax. 

Tax Thresholds

A tax threshold refers to the specific income level at which a new tax rate begins to apply. When your income exceeds a given threshold, the portion above that level may be taxed at a higher rate.

Tax Bands

Tax bands define the income ranges to which different tax rates are applied. Your taxable income is split across these bands, with each portion taxed at the appropriate rate. In the UK, Income Tax typically includes the basic rate band, higher rate band, and additional rate band. This means that not all of your income is taxed at one rate; instead, you may pay different rates on different portions.

Tax Allowances

A tax allowance is the amount of income you can earn before you start paying tax. The most well-known is the Personal Allowance, which allows you to earn a set amount tax-free each tax year. For 2024/25 and 2025/26, the standard Personal Allowance remains at £12,570. Some allowances apply to specific types of income, such as the Marriage Allowance, Dividend Allowance, and Capital Gains Tax Annual Exempt Amount.

2025/26 vs 2024/25 Tax Rates

The following are the changes in UK Tax rates:

2025/26 Income Tax Bands and Rates (England, Wales, and Northern Ireland)

• The Personal Allowance tapers down for individuals earning over £100,000. For every £2 earned above this level, £1 of Personal Allowance is lost.
• Once your income exceeds £125,140, you lose your Personal Allowance entirely.
• These rates apply to non-savings, non-dividend income in England, Wales, and Northern Ireland.
• Scotland has different Income Tax bands and rates under its devolved powers.

National Insurance Contributions (NICs) 

National Insurance is a UK tax on earnings and self-employed profits that helps fund state benefits, including the State Pension, Statutory Sick Pay, and Maternity Allowance. The amount you pay depends on your employment status and how much you earn or profit.

In the 2025/26 tax year, National Insurance Contributions (NICs) are structured differently for employees, employers, and the self-employed. Class 1 NICs apply to employees, with a rate of 8% on earnings between £12,570 and £50,270. 

For earnings over £50,270, the rate drops to 2%. Employers are responsible for Class 1 NICs as well, paying 13.8% on earnings above £9,100 annually. For the self-employed, Class 2 NICs are abolished from April 2025, meaning there will be no weekly flat-rate contribution. 

However, Class 4 NICs still apply to self-employed individuals, with a rate of 6% on profits between £12,570 and £50,270, and 2% on profits over £50,270.

Dividend Tax

For the 2025/26 tax year, the Dividend Allowance has been reduced significantly. The new allowance stands at £1,000, down from £2,000 in the previous tax year. The rates for dividend income depend on the taxpayer's income band, which are applied after the Dividend Allowance is exhausted:

• Basic Rate Taxpayers: Dividend income is taxed at 8.75%.
• Higher Rate Taxpayers: Dividend income is taxed at 33.75%.
• Additional Rate Taxpayers: Dividend income is taxed at 39.35%.

These rates apply to any income above the £1,000 Dividend Allowance, and the allowance is applied against taxable dividend income.

Capital Gains Tax (CGT)

For the 2025/26 tax year, the CGT Annual Exempt Amount (AEA) has been reduced to £6,000 (down from £12,300 in 2024/25). This is the amount of capital gains you can realise without paying any CGT. Beyond the AEA, the rates depend on whether you are a basic or higher-rate taxpayer:

• Basic Rate Taxpayers: 10% on gains from most assets, and 18% on gains from property (e.g., second homes or buy-to-let properties).
• Higher and Additional Rate Taxpayers: 20% on gains from most assets, and 28% on property-related gains.

This means that basic rate taxpayers will pay 10% on gains from most assets, and higher rate taxpayers will pay 20%. Property-related gains are taxed at a higher rate for both categories.

Corporation Tax

The corporation tax rate for 2025/26 is set at 25% for companies with profits over £250,000. However, small companies with profits under £50,000 will continue to pay a lower rate of 19%.

For companies with profits between £50,000 and £250,000, a marginal relief will apply. This relief gradually increases the tax rate from 19% to 25% as profits rise, ensuring that businesses with profits falling in this range don’t face a sharp tax rate jump.

With changes to dividend tax, capital gains tax allowances, and National Insurance contributions, along with continued freezes on key thresholds like the Personal Allowance, the 2025/26 tax year brings both adjustments and challenges. Even small changes can have a noticeable impact over time, especially if your income or circumstances have shifted.

If you want to understand the latest UK tax rates, thresholds, tax bands, and allowances, PHS Associates is here to help. Our team provides clear, up-to-date guidance customised to your personal or business needs. Whether you're planning for the new tax year, managing self-employment income, or looking to make the most of your tax allowances, we’ll ensure you stay informed and compliant. Contact us by phone at 0208 8611685 or by email at info@phs-uk.co.uk if you need accountants.