Last reviewed: 01 July 2025
Understanding how personal income tax works in the United Kingdom is essential for effective financial planning — especially with key thresholds frozen until April 2028. At Direct Assist Accountants Ltd, our tax experts help individuals and business owners stay compliant, minimise liabilities, and make the most of available allowances.
In this blog, we explain the UK income tax rates for 2025/26, key updates from the Autumn Budget 2024, and the new residence-based tax regime effective from 6 April 2025.
The UK personal income tax system is progressive, meaning higher income is taxed at higher rates. Your total income includes all employment earnings, self-employment profits, dividends, savings interest, and investment returns, less allowable deductions and personal allowances.
The personal allowance — the amount you can earn tax-free — remains £12,570 for the 2025/26 tax year. This threshold, along with others, is frozen until April 2028.
Note: If your income exceeds £100,000, your personal allowance is reduced by £1 for every £2 you earn above this level and is completely removed once income exceeds £125,140.
| Income Band (GBP) | Income Tax Rate (non-dividends) | Dividend Tax Rate |
|---|---|---|
| 0 – 12,570 (Personal Allowance) | 0% | 0% |
| 0 – 12,570 (Personal Allowance | 20% | 8.75% |
| 50,271 – 125,140 (Higher Rate) | 20% | 8.75% |
| Over 125,140 (Additional Rate) | 45% | 39.75% |
Dividend Allowance: The first £500 of dividend income is taxed at 0%, but still counts toward your total income for determining which band you fall into.
Savings income (typically bank interest) may qualify for a 0% starting rate, but this only applies if your non-savings income is below £17,570.
For more information, see the official HMRC Income Tax Rates and Allowances.
Scottish residents pay different rates on employment, pensions, and most other income (excluding dividends and savings).
| Income Band (GBP) | Scottish Rate (%) |
|---|---|
| 0 – 12,570 | 0% |
| 12,571 – 15,397 | 19% (Starter Rate) |
| 15,398 – 27,491 | 20% (Basic Rate) |
| 27,492 – 43,662 | 21% (Intermediate Rate) |
| 43,663 – 75,000 | 42% (Higher Rate) |
| 75,001 – 125,140 | 45% (Advanced Rate) |
| Over 125,140 | 48% (Top Rate) |
If you live in Scotland, you can check your tax code and rate on mygov.scot’s income tax guide.
Trustees are taxed differently depending on the type of trust:
Discretionary/Accumulation trusts:
First £500 of income – 20% (or 8.75% for dividends), above this – 45% (or 39.35% for dividends).
Interest in possession trusts:
20% (or 8.75% for dividends).
Trust income distributed to beneficiaries must be reported on the beneficiary’s own tax return. As trust taxation is complex, we strongly recommend seeking specialist advice.
👉 Learn more from HMRC Trusts and Taxes.
From 6 April 2025, the UK tax system moved to a residence-based regime, replacing the previous domicile-based approach.
Individuals resident in the UK for more than four tax years are taxed on worldwide income and gains, regardless of domicile.
Foreign Income & Gains (FIG) Regime: New UK residents can enjoy four years of exemption on foreign income/gains if they’ve been non-resident for the previous 10 years.
Overseas Workday Relief (OWR): Applies to eligible employees’ overseas earnings for up to four years.
Temporary Repatriation Facility: Favourable 12–15% tax rate for remitting historic offshore income (2025–2028).
Inheritance Tax (IHT): Now applies to global assets for those who’ve been UK resident for 10 of the last 20 years (“long-term residents”).
If you have international income or assets, these changes could significantly impact your UK tax liability.
Under the new rules:
UK IHT applies to worldwide assets once you have been UK-resident for 10 of the previous 20 tax years.
UK assets remain taxable at all times, regardless of residence status.
After leaving the UK, IHT exposure continues for up to 10 years, depending on how long you were resident.
These rules can also affect offshore trusts and foreign investments, so expert tax planning is essential to avoid double taxation and maximise reliefs.
Whether you are:
A UK resident with overseas income,
A non-UK national moving to the UK, or
A trustee or business owner,
the 2025/26 tax year introduces major shifts in how income, gains, and inheritance are taxed.
At Direct Assist Accountants Ltd, our experienced tax advisers in Slough can help you:
Structure your income efficiently under the new rules
Manage cross-border tax exposure
Claim appropriate allowances and reliefs
Stay compliant with HMRC reporting requirements
Understanding and managing personal income tax in the UK has never been more complex. Our team at Direct Assist Accountants can help you navigate every aspect of your UK and international tax obligations.
👉 Contact us today for professional tax planning advice and personalised support.
We also offer tailored accounting and tax services for:
(0203) 633 2018
info@directassistaccountants.co.uk
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