UK Tax Allowances and Rates for 2025/26 – and useful tax calculators

The UK tax system has a range of allowances and rates that apply to individuals and businesses. Understanding these can help you accurately calculate tax liabilities including your net take-home pay. Below is an overview of the most important tax allowances and rates for the 2025/26 tax year.

1. Personal Allowance

• Standard Personal Allowance: £12,570 if you are entitled to the full allowance
  • This is the amount of income you can earn before you start paying income tax.
  • For incomes over £100,000, the Personal Allowance is reduced by £1 for every £2 earned above this threshold. You therefore don't get a personal allowance if you earn over £125,140.
• Marriage Allowance: Up to £1,260
  • This allows a lower-earning spouse or civil partner to transfer up to £1,260 of their unused Personal Allowance to their partner, provided the recipient does not pay higher-rate tax.
• Blind Person’s Allowance: £2,870
  • Additional allowance for individuals registered as blind.

2. Income Tax Rates

• Personal allowance (0%): Income up to £12,570 as long as you earn £100k or under. On incomes over £100,000, the Personal Allowance is reduced by £1 for every £2 earned above this threshold. You therefore don't get a personal allowance if you earn over £125,140.
• Basic Rate (20%): Income between £12,571 and £50,270.
• Higher Rate (40%): Income between £50,271 and £125,140.
• Additional Rate (45%): Income over £125,140.

Useful income tax calculator for calculating take home pay - income tax calculator

3. National Insurance Contributions (NICs)

Key changes for 2025/26 include a reduction in employee and self-employed Class 4 rates, and an increase in employer Class 1 rates.

• Class 1 NICs (Employees):
  • Primary Threshold: £12,570 (annual)
  • Rate on Earnings Between £12,570 and £50,270: 8%
  • Rate on Earnings Above £50,270: 2%
• Class 1 NICs (Employers):
  • Secondary Threshold: £5,000 (annual - frozen)
  • Rate on Earnings Above £5,000: 15%
• Class 4 NICs (Self-Employed):
  • Lower Profits Limit: £12,570
  • Rate on Profits Between £12,570 and £50,270: 6%
  • Rate on Profits Above £50,270: 2%
• Class 2 NICs (Self-Employed): Flat rate of £3.45 per week if profits are above the Small Profits Threshold of £6,725 (Note: Class 2 NICs are largely being phased out for most, but many may choose to pay voluntarily to protect their State Pension.)

4. Dividend Tax Rates

• Dividend Allowance: £500. The first £500 of dividends is tax-free.
• Dividend Tax Rates:
  • Basic Rate (8.75%): Dividends within the basic rate band.
  • Higher Rate (33.75%): Dividends within the higher rate band.
  • Additional Rate (39.35%): Dividends within the additional rate band.

Useful dividend tax calculator

5. Capital Gains Tax (CGT)

• Annual Exempt Amount: £3,000 – This is the amount of capital gains you can make before you start paying CGT.
• CGT Rates for Residential Property:
  • Basic Rate Taxpayers: 18%
  • Higher and Additional Rate Taxpayers: 24%
• CGT Rates for Other Assets:
  • Basic Rate Taxpayers: 18%
  • Higher and Additional Rate Taxpayers: 24%

To calculate a gain

• • Start with sale price minus purchase price (and any allowable costs like fees or improvements).
  • Then subtract your Capital Gains Tax allowance (£3,000 for 2025/26).
  • Add your taxable capital gain to your income after applying your income tax allowances (like the personal allowance)Work out how much of your remaining gain falls into your unused basic-rate income tax band (up to £50,270 in 2025/26, including salary).
  • Tax that portion at 18%.
  • Tax any remaining gain at 24%

For example You earn £35,000 salary and sell shares with a £10,000 gain, then:

• • £10,000 gain − £3,000 allowance = £7,000 taxable gain
  • Total income = £35,000 + £7,000 = £42,000 which is all still within basic rate
  • So you pay 18% on the £7,000 = £1,260 CGT

If instead you earned £48,000:

• • £48,000 + £7,000 = £55,000

That pushes £4,730 into higher-rate territory (above £50,270)

So:

• • First £2,270 at 18% = £408.60
  • Remaining £4,730 at 24% = £1,135.20
  • Total CGT = £1,543.8

Useful capital gains tax calculator

6. Inheritance Tax (IHT)

• Nil-Rate Band: £325,000 – This is the threshold up to which an estate is free from inheritance tax. The nil-rate bands remain frozen until April 2030.
• Rate on Excess Over the Nil-Rate Band: 40%
  • 36% if 10% or more of the estate is left to charity.
• Residence Nil-Rate Band (RBRB): £175,000 – An additional allowance for passing on a main residence to direct descendants which means children or grandchildren. The descendants have to be 'direct' and so excludes brothers, sisters, nieces and nephews. Also if the deceased's a net estate over £2million their  RNRB will be reduced by £1 for every £2 over this threshold.
• Spousal Inheritance of IHT Allowances: If one spouse or civil partner dies and leaves their estate to the surviving spouse, the unused portion of the deceased's Nil-Rate Band and Residence Nil-Rate Band can be transferred to the surviving spouse. This effectively doubles the available allowances for the surviving spouse’s estate, potentially increasing the Nil-Rate Band to £650,000 and the Residence Nil-Rate Band to £350,000.

Useful inheritance tax calculator

7. Pension Contributions

• Annual Allowance: £60,000 – This is the maximum amount you can contribute to your pension each year and still receive tax relief. This £60,000 limit is a gross figure that includes all your personal contributions, your employer's and government tax relief added to your personal contributions. If the total gross contributions from all these sources exceed £60,000 in a tax year, you will face an "Annual Allowance Charge" on the excess amount, effectively reclaiming the tax relief
• You only receive tax relief on personal pension contributions up to the lower of:
  • 100% of your UK earnings. Crucially, this is a gross limit, meaning the total of your contribution and the government's tax relief cannot exceed your earnings. (If you earn less than £3,600 a year, you can get tax relief on up to £3,600 of pension savings each tax year until you’re 75 - so £2,880 of your money and £720 in tax relief).
  • the £60,000 annual allowance.

This distinction between what you pay versus the gross total is critical. To calculate the maximum you can pay from your bank account (your 'net contribution'), you must remember that the earnings limit applies to the 'gross contribution'.
For example: if you earn £10,000, your gross limit is £10,000. Therefore, the maximum you can pay from your bank account is £8,000. The government then adds the 20% tax relief (£2,000), bringing the total gross contribution up to your £10,000 limit.

• Tapered Annual Allowance: For high earners with an adjusted income over £260,000, the annual allowance is reduced by £1 for every £2 of income over this threshold, down to a minimum of £10,000.
• Money Purchase Annual Allowance (MPAA): If you have accessed your pension savings flexibly (e.g., through a drawdown or lump sum withdrawal), the MPAA may apply, reducing your annual allowance to £10,000.
  • Note that the Money Purchase Annual Allowance (MPAA) is triggered when you access your pension savings flexibly. However, there are specific situations where accessing your pension won't trigger the MPAA:
    • Taking a Small Lump Sum:
      • You can withdraw up to three small lump sums (also known as "small pots") of up to £10,000 each from non-occupational defined contribution pensions without triggering the MPAA.
    • Taking a Pension Commencement Lump Sum (PCLS) (25% tax-free lump sum):
      • If you only take the 25% tax-free lump sum and leave the rest of your pension pot untouched, the MPAA will not be triggered.
    • Drawing from a Defined Benefit (Final Salary) Pension:
      • Taking income from a defined benefit pension scheme (such as a final salary or career average scheme) does not trigger the MPAA.
    • Capped Drawdown (Pre-April 2015):
      • If you were in a "capped drawdown" arrangement before April 2015 and continue to take income within the capped limits, the MPAA is not triggered.
    • Taking a Lifetime Annuity:
      • Purchasing a lifetime annuity that provides a guaranteed income for life does not trigger the MPAA, as long as it’s not a flexible annuity.
    • Receiving a Scheme Pension:
      • Receiving a scheme pension, such as one provided by a defined benefit pension, does not trigger the MPAA.
    • Taking Ill-Health Retirement:
      • If you take your pension early due to ill health (and meet the requirements for ill-health retirement), the MPAA will not automatically apply unless you access it through flexible arrangements.
• Carry forward rules: you can carry forward any unused pension annual allowance from the three previous tax years. To be eligible, you must have been a member of a registered pension scheme during those years, although you do not need to have made any contributions. The process requires you to first use up your full annual allowance for the current tax year, which for the 2025/2026 tax year is £60,000 for most people. Once this is exhausted, you can then draw upon the unused allowance from the earliest of the three preceding tax years first. The total amount of personal contributions you can make in a tax year, including any carried-forward amount, cannot exceed your relevant UK earnings for that same year. Furthermore, individuals who have flexibly accessed their pension and are therefore subject to the Money Purchase Annual Allowance (MPAA) of £10,000 are generally not able to utilise the carry-forward rule for contributions to defined contribution schemes. Those with very high incomes may also be subject to a tapered annual allowance, which would reduce the amount they can contribute and subsequently carry forward.
• Lifetime Allowance: Abolished from April 2024 – There is no longer a cap on the total amount you can accumulate in your pension without facing additional tax charges.
• Contributions for Non-Earners: Non-earners can contribute to a pension and still receive tax relief. The maximum gross amount a non-earner can contribute is £3,600 annually.
  • Net Contribution: £2,880 (the amount the individual actually pays).
  • Tax Relief: £720 (added by the government).
  • Gross Contribution: £3,600 (the total amount that goes into the pension, including tax relief).
• Tax Relief on Contributions:
  • Basic rate taxpayers: 20% tax relief.
  • Higher rate taxpayers: 40% tax relief (with the additional 20% claimed through self-assessment).
  • Additional rate taxpayers: 45% tax relief (with the additional 25% claimed through self-assessment).

8. VAT (Value Added Tax)

• Standard Rate: 20% – Applies to most goods and services.
• Reduced Rate: 5% – Applies to certain goods and services, such as home energy.
• Zero Rate: 0% – Applies to essential items like food and children's clothing.
• Company VAT Registration Threshold: £90,000 (for taxable turnover in any rolling 12-month period).

9. Corporation Tax

• Main Rate: 25% – For companies with profits above £250,000.
• Small Profits Rate: 19% – For companies with profits up to £50,000.
• Marginal Relief: Companies with profits between £50,000 and £250,000 will pay tax at a rate between 19% and 25%, depending on the level of profits.

10. Property Taxes

From April 1, 2025, the temporary reductions to SDLT that were introduced in September 2022 ended. The current rates of Stamp Duty Land Tax are

• Stamp Duty Land Tax (SDLT) for Residential Properties in England & Northern Ireland:
  • 0% on the first £125,000
  • 2% on the portion between £125,001 and £250,000
  • 5% on the portion between £250,001 and £925,000
  • 10% on the portion between £925,001 and £1.5 million
  • 12% on the portion above £1.5 million
• First-Time Buyer Stamp Duty Relief:
  • Eligibility: Applies to individuals purchasing their first residential property. The property must be purchased outright or with a mortgage, and cannot exceed £500,000.
  • Relief Structure:
    • 0% on the first £300,000
      5% on the portion between £300,001 and £500,000
  • Example:
    • If a first-time buyer purchases a property for £300,000: SDLT would be 0% on the entire amount, resulting in no SDLT payable.
    • If a first-time buyer purchases a property for £400,000:
      • 0% on the first £300,000 = £0
      • 5% on the remaining £100,000 = £5,000
      • Total SDLT: £5,000
    • If a first-time buyer purchases a property for £550,000: No first-time buyer relief applies, and standard rates will be used.
• Additional SDLT Rules:
  • Purchasing additional properties, such as buy-to-let or second homes, will attract an extra 3% SDLT on top of the standard rates.

Useful stamp duty calculator

• Council Tax: Varies depending on the property’s valuation band and local authority rates.

11. Employee share schemes, such as Share Save (SAYE) and Share Incentive Plans (SIPs)

Employee share schemes, such as Share Save (SAYE) and Share Incentive Plans (SIPs), are designed to encourage employee ownership and often come with favourable tax treatment.

Share Save (SAYE) Schemes

SAYE, or Save As You Earn, schemes allow employees to save a fixed amount (between £5 and £500 monthly) over a three or five-year period. At the end of the savings term, employees have the option to buy company shares at a discounted price (up to 20% off the market value at the start of the scheme) or take their savings back, often with a tax-free bonus.

• Income Tax & National Insurance Contributions (NICs): You generally do not pay Income Tax or National Insurance on the difference between what you pay for the shares and what they are worth when you exercise your option, provided the scheme adheres to HMRC rules. The interest or bonus on your savings is also tax-free.
• Capital Gains Tax (CGT): CGT may be payable when you sell the shares if you make a profit (gain) that exceeds the annual exempt amount. The tax rates are as for shares.

Share Incentive Plan (SIP) Shares

A Share Incentive Plan (SIP) is another tax-advantaged employee share scheme where your employer can give you shares or allow you to buy them. There are four main types of shares within a SIP:

• Free Shares: Your employer can give you up to £3,600 worth of free shares in any tax year.
• Partnership Shares: You can buy shares from your gross salary (before tax deductions), up to £1,800 or 10% of your income for the tax year (whichever is lower).
• Matching Shares: Your employer can give you up to two free matching shares for each partnership share you buy.
• Dividend Shares: You may be able to buy more shares with the dividends you receive from your free, partnership, or matching shares (if the scheme allows it).
• Income Tax & National Insurance Contributions (NICs):
  • If you keep the shares in the SIP for 5 years or more, you generally will not pay Income Tax or National Insurance on their value when you sell them or take them out of the plan.
  • If you remove shares from the plan within 3 years of acquisition, Income Tax and NICs will be due on the market value of the shares at the time of withdrawal.
  • If you remove shares from the plan between 3 and 5 years, Income Tax will be due on the lower of the market value at acquisition or withdrawal (for Free and Matching Shares). For Partnership Shares, Income Tax is due on the salary used to buy the shares or their market value at withdrawal, whichever is lower.
  • For Dividend Shares, if kept for at least 3 years, you generally won't pay Income Tax. If withdrawn before 3 years, Income Tax will be payable on the original cash dividend amount.
• Capital Gains Tax (CGT):
  • You generally do not pay CGT on shares held within the SIP itself.
  • If you sell shares directly from the SIP after 5 years, you typically won't pay CGT.
  • If you remove shares from the plan and then sell them, CGT may be payable on any increase in value from the date they left the SIP to the date of sale.