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UK income tax rates and tax brackets explained

Benjamin Franklin was famously quoted as saying, “Nothing can be said to be certain except death and taxes.” While many of us begrudgingly accept this as truth, understanding tax allowances, tax rates and tax brackets is a little more complex. On this page, we explain what you need to know about income tax rates for 2020/21, how personal allowance works and the different tax thresholds.

UK income tax and tax bracketsUK income tax and tax bracketsUK income tax and tax brackets

What are income tax rates?

In the UK, income tax is the percentage the government imposes on income generated by businesses or individuals. Taxpayers must file an annual income tax return (if you’re employed, your employer will do this for you) to determine the tax band you fall into and how much tax you’ll need to pay.

Income tax is used to fund public services such as the NHS and education, as well as improving things like roads and housing.

How does the personal allowance work?

UK taxpayers each have a personal allowance, which is the amount you can earn before you start paying income tax. When you earn more than your personal allowance, you pay tax at your applicable income tax rate on the amount you earn above the personal allowance threshold.

The standard tax-free personal allowance is currently £12,500 (2020/21 tax year). This is the amount you typically won’t pay tax on. However, if you earn over £100,000 per annum, your personal allowance reduces by £1 for every £2 you earn. This means that if you earn £125,000, you’ll pay income tax on everything you earn and you won’t be eligible for a tax-free personal allowance.

What are the UK tax brackets?

You’ll find the UK tax rates for 2020/21 in the tables below. The first table shows the current tax bands for people living in England, Wales and Northern Ireland, and the second table shows the tax brackets for Scotland, which are calculated slightly differently.

Tax Band Taxable Income in England, Wales and Northern Ireland Tax Rate
Personal allowance £0 - £12,500 0%
Basic rate £12,501 - £50,000 20%
Higher rate £50,001 - £150,000 40%
Additional rate Over £150,000 45%
Tax Band Taxable Income in Scotland Tax rate
Personal allowance £0 - £12,500 0%
Starter rate £12,501 - £14,549 19%
Basic rate £14,550 - £24,944 20%
Intermediate rate £24,945 - £43,430 21%
Higher rate £43,431 - £150,000 41%
Top rate Over £150,000 46%

What do the tax thresholds mean?

Every tax bracket in the UK has a tax threshold, which is the upper limit you can earn each year in that tax bracket. Your tax threshold is made up of your personal allowance, income from work, and income from any other source, such as the interest you might earn on savings accounts (you can find out more about how savings are taxed here).

If you earn £12,500 a year or less, you won’t pay any income tax. The next tax threshold is for basic rate taxpayers, who pay 20% tax on an income of £12,500 to £50,000. If you earn more than £50,001 a year, you’ll pay the higher rate of 40% tax on anything you earn between £50,001 and £150,000. Once your income is more than £150,000, you’ll pay the additional tax rate of 45% on anything you earn over that amount.

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