2026-27 Tax Rates & Allowances

Personal allowances

​Personal income tax allowance (PA) £12,570 
Marriage allowance (transferable) £1,260
Blind person’s allowance £3,250 
Rent-a-room relief £7,500 
Trading income allowance £1,000
Property income allowance £1,000

PA is reduced by £1 for every £2 by which Adjusted Net Income (ANI)
exceeds £100,000, so PA is nil when ANI is £125,140.

ANI is total taxable income, less qualifying pension contributions and Gift Aid donations.

Marriage allowance is the transferable part of the PA and is available only to married couples and civil partners born after 5 April 1935. It can be transferred to their spouse or civil partner as long as the recipient is not a higher or additional rate taxpayer.

The rent-a-room exemption is available where the taxpayer lets out part of the home they live in as furnished residential accommodation.

The trading and property income allowances have various conditions that restrict their availability.

Where rent-a-room, trading or property income exceed the relevant limit
above, that

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Income Tax bands and rates

​Savings Rate Band £5,000
Basic Rate Band (BRB) £37,700
Higher Rate Band (HRB) £37,701-125,140
Additional rate over £125,140 

Personal Savings Allowance (PSA)
– Basic rate taxpayer £1,000 
– Higher rate taxpayer £500 

Dividend allowance £500

 

The BRB and additional rate threshold are extended by the grossed-up equivalent of personal pension contributions and Gift Aid donations paid by the taxpayer in the tax year, or treated as paid in the tax year.

Taxable income usually uses up the rate bands in the following order:
• ‘General income’ (employment, pensions, business profits, rent)
• ‘Savings income’ (mainly interest)
• ‘Dividends’ (distributions from companies/most unit trusts)

 

The savings rate band is part of the basic rate band, meaning that to the
extent that savings income falls in the first £5,000 of the basic rate band, it is taxed at nil rather than 20%.

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Income tax rates
Basic rate                         

General 20%     

Savings 20%     

Dividends 10.75 %
Higher rate                       

General 40%   

Savings 40%     

Dividends 35.75 %
Additional rate               

General 45%   

Savings 45%     

Dividends 39.35 %

The PSA taxes interest at nil, where it would otherwise be taxable at 20% or 40%. It is not available to an additional rate taxpayer.

Dividends are usually taxed as the ‘top slice’ of income. The Dividend
Allowance taxes the first £500 of dividend income at nil rather than the rate that would otherwise apply.

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High Income Child Benefit charge (HICBC)
Lower threshold £60,000 
Upper threshold £80,000 

Only applicable to families who receive child benefit, where adjusted net
income of the higher earner is above the lower threshold.

 

HICBC is equivalent to 1% of child benefit received by the family, for every £200 of adjusted net income over the lower threshold.

 

The higher earner in the family must declare child benefit received by them or their partner on their tax return, unless they are eligible to pay the tax charge via PAYE.

 

The recipient of child benefit can elect not to receive it in order to avoid
the HICBC, without losing their right to accrue certain state benefits. Child benefit payments can subsequently be recommenced if the claimant chooses.

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State pension
Maximum amount per week:
Old state pension  £184.90 
New state pension £241.30 

An individual is eligible to draw the state retirement pension when he or
she reaches State Pension Age (SPA). This age is increasing for both men and women. It became 66 in October 2020 and increases to 67 by 6 April 2028. It is due to reach 68 by 6 April 2046.

Individuals who reach SPA after 5 April 2016 receive the new state pension, which replaced the old state pension and the second state pension.

 

An individual who qualifies for the state pension may choose to defer
claiming it. Any deferred pension will be paid at a higher rate than the
normal pension. The increment is 5.8% for each deferred year.

 

The state pension is taxable.

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National Insurance Rates & Thresholds

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Class 1 NICs thresholds                             Week    Month    Year
Lower Earnings Limit (LEL)                        £129    £559       £6,708
Primary Threshold (PT)                               £242    £1,048    £2,570
Secondary Threshold (ST)                         £96      £417        £5,000
Upper Secondary Threshold (UST)       £967    £4,189    £50,270
Upper Earnings Limit (UEL)                      £967    £4,189    £50,270

Employers and employees both contribute at rates dependent on the level of earnings during a weekly, monthly or annual earnings period.
 

No employee NICs are payable on earnings between the LEL and the PT
but, when reported by the employer, the employee accesses entitlement to contributory benefits.

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Class 1 NICs rates 
                                                          Employee      Employer
PT/ST to UEL                                     8%                   15%
Above the UEL                                  2%                   15%
Class 1A/1B N/A                                                       15%

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Class 2 NICs

Rate per week 
Flat rate (voluntary)                                                £3.65
Small Profits Threshold (SPT)                             £7,105

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Self-employed people with profits above the SPT are not required to pay
Class 2 NICs.
 

Those with profits above the SPT access entitlement to contributory
benefits, while those whose profits are less than the SPT can pay Class 2 NICs voluntarily to maintain this access.

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Class 4 NICs
                                                                               Annual 
Lower profits limit (LPL)                               £12,570 
Upper profits limit (UPL)                              £50,270 
LPL to UPL    6% 
Above UPL    2% 

Class 4 NICs are payable on profits from UK trades or professions that
exceed the lower profits limit.
 

Class 4 NICs are collected through self-assessment.
 

An individual who is both employed and self-employed may pay Class 1
and Class 4 NICs, subject to the maximum limit for the year.

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Capital Gains Tax Annual Exempt Amount (AEA)

Individuals and deceased estates                                £3,000

Most trusts                                                                               £1,500

 

Each individual is entitled to an AEA.

The AEA cannot be transferred, nor carried forward or back to another year.

 

CGT Rates
Individual up to Basic Rate Limit (BRL) 18%

Individual above BRL, trusts and estates 24%

Business asset disposal relief (BADR) 18%

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Corporation Tax (CT)

Main rate (profits above £250,000) 25%
Small profits rate (profits up to £50,000) 19% 
Marginal relief band (MRB) £50k - £250k
Marginal relief fraction 3/200 3/200
 

Where profits are £250,000 or more, all of the company’s profits are taxed at 25%.

 

Where profits are between £50,000 and £250,000, ’marginal relief’ reduces the average rate of tax to somewhere between 19% and 25%. The effect of this calculation is that the first £50,000 of profits are taxed at 19% and the balance at 26.5%.

 

These limits are split between the number of ‘associated companies’,
which are (broadly) companies under common control plus any company exercising that control (subject to exceptions).

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Value Added Tax

Standard rate 20% 
Reduced rate 5% 
Zero rate 0% 

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VAT thresholds
Registration
– Turnover for last 12 months £90,000 

Deregistration
– Turnover next 12 months £88,000 

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Small business schemes
 Annual turnover                                         Joining            Leaving
Flat-rate scheme (FRS)                           £150,000          £230,000
Annual accounting                                   £1,350,000       £1,600,000
Cash accounting                                       £1,350,000       £1,600,000

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