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Complete Guide to UK Income Tax Bands and Allowances for 2025/26

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Complete Guide to UK Income Tax Bands and Allowances for 2025/26

Understanding the UK income tax system is crucial for individuals and businesses to effectively plan their finances. For the 2025/26 tax year, several changes have been introduced, and comparing them with the previous tax year can help taxpayers anticipate their liabilities. This guide explains income tax rates, personal allowances, thresholds, and their net impact on taxpayers, with illustrative examples. Additionally, we provide insights on minimizing employment tax and tips for reducing overall tax liabilities.

Income Tax Bands and Rates for 2025/26

The income tax system in the UK is divided into bands, with different rates applied to each band. Below are the income tax bands and rates for the 2025/26 tax year:

Band Income Range (£) Tax Rate
Personal Allowance Up to 12,570 0%
Basic Rate 12,571 - 50,270 20%
Higher Rate 50,271 - 125,140 40%
Additional Rate Over 125,140 45%

Comparison with 2024/25:

  • The personal allowance (£12,570) and tax thresholds remain unchanged.

  • The additional rate threshold continues at £125,140 following recent adjustments to reduce the higher-rate threshold from earlier years.

Note: Personal allowance reduces by £1 for every £2 of income over £100,000, effectively disappearing at £125,140.

Personal Allowance and Other Key Allowances

1. Personal Allowance:

  • £12,570 for individuals earning up to £100,000.

  • Reduces on a tapering basis for incomes above £100,000.

2. Marriage Allowance:

  • Allows transfer of 10% of personal allowance (£1,257) to a lower-earning spouse or civil partner if the higher earner is a basic-rate taxpayer.

3. Blind Person's Allowance:

  • Additional ¥2,870 allowance for blind individuals.

Comparison with 2024/25:

  • Allowances remain unchanged, offering stability for taxpayers but no additional relief in light of inflation.

Minimizing Employment Tax through Self-Assessment and Planning

Employment tax can significantly impact your income. Here are effective ways to minimize it:

1. Self-Assessment:

  • File accurate and timely self-assessment returns to claim all eligible allowances and reliefs.

  • Include expenses incurred wholly and exclusively for work purposes, such as professional subscriptions, uniforms, or equipment.

2. Maximize Pension Contributions:

  • Contribute to a pension scheme to reduce taxable income. Contributions up to £60,000 annually are tax-relievable (subject to earnings).

3. Salary Sacrifice Schemes:

  • Reduce taxable income by participating in salary sacrifice schemes for pensions, cycle-to-work programs, or childcare vouchers.

4. Claim Work-Related Expenses:

  • Employees can claim tax relief on travel, meals, or home office expenses incurred while working.

5. Dividend Payments:

  • If you're a director of a limited company, structure income through a combination of salary and dividends. Dividends are taxed at lower rates compared to employment income.

6. Use Tax-Free Benefits:

  • Utilize employer-provided tax-free benefits like health insurance, interest-free loans under £10,000, and mobile phone usage.

Net Effect on Taxpayers: Illustrative Examples

Example 1: Basic Rate Taxpayer

  • Income: £40,000.

  • Tax Liability (2025/26):

    • Personal Allowance: £12,570 (tax-free).

    • Taxable Income: £27,430.

    • Basic Rate Tax: 20% of £27,430 = £5,486.

  • Tax Liability (2024/25): Same as 2025/26, as thresholds are unchanged.

  • Net Effect: No change in tax liability.

Example 2: Higher Rate Taxpayer

  • Income: £75,000.

  • Tax Liability (2025/26):

    • Personal Allowance: £12,570 (tax-free).

    • Taxable Income: £62,430.

    • Basic Rate Tax: 20% of £37,700 = £7,540.

    • Higher Rate Tax: 40% of £24,730 = £9,892.

    • Total Tax: £17,432.

  • Tax Liability (2024/25): Same as 2025/26.

  • Net Effect: No change in tax liability.

Example 3: Additional Rate Taxpayer

  • Income: £150,000.

  • Tax Liability (2025/26):

    • Personal Allowance: £0 (fully tapered).

    • Basic Rate Tax: 20% of £37,700 = £7,540.

    • Higher Rate Tax: 40% of £87,440 = £34,976.

    • Additional Rate Tax: 45% of £24,860 = £11,187.

    • Total Tax: £53,703.

  • Tax Liability (2024/25): Same as 2025/26.

  • Net Effect: No change in tax liability.

Why Choose Acumen Accountants and Tax Advisers?

At Acumen Accountants and Tax Advisers, we help individuals and businesses:

  • Optimize tax efficiency and allowances.

  • Plan effectively for higher income tax thresholds.

  • Navigate complex tax rules and minimize liabilities.

Contact Us Today:
📞 07534473220
🌐 www.acumenagc.com
✉ info@acumenagc.com
🏢 37th Floor, 1 Canada Square, London E14 5DY
📅 Book Online Meeting Here

Final Thoughts

While the 2025/26 tax year brings no major changes to income tax rates or allowances, taxpayers must remain vigilant to optimize their finances. With proper planning and professional advice, you can navigate the UK tax system efficiently. Reach out to Acumen Accountants and Tax Advisers for expert guidance and tailored tax solutions.