UK Income Tax 2025 — What’s Changing and Who Pays More?
UK Income Tax 2025 — What’s Changing and Who Pays More?
From 6 April 2025 to 5 April 2026, the way income tax works in the UK looks similar on the surface: the headline rates are unchanged, and the main personal allowance is still £12,570. But freezes to tax thresholds, changes in Scotland, and earlier cuts to allowances mean many people will quietly pay more in real terms.
This matters in 2025 because wages, rents and household bills have continued to rise faster than tax thresholds. More workers are crossing into higher tax bands, more families are caught by the High Income Child Benefit Charge, and more investors are paying tax on dividends and capital gains.
Key income tax changes for 2025/26
1. Thresholds frozen again in England, Wales and Northern Ireland
For the 2025/26 tax year, the core income tax thresholds for England, Wales and Northern Ireland are unchanged and remain frozen at levels first set in 2021/22:
- Personal Allowance: £12,570
- Basic rate band: £12,571 to £50,270 (20%)
- Higher rate band: £50,271 to £125,140 (40%)
- Additional rate band: above £125,140 (45%)
The Personal Allowance and basic rate limit are legislated to stay fixed at their current cash values up to and including 2025/26, and the wider freeze on personal tax thresholds runs until April 2028 before they start rising with inflation again.
2. Scottish income tax bands change again
In Scotland, the devolved government has made further changes to rates and bands for 2025/26. Scottish taxpayers still get the same UK-wide Personal Allowance (£12,570), but the bands and rates above that are different and more graduated:
- Starter rate (19%): £12,571 to £15,397
- Basic rate (20%): £15,398 to £27,491
- Intermediate rate (21%): £27,492 to £43,662
- Higher rate (42%): £43,663 to £75,000
- Advanced rate (45%): £75,001 to £125,140
- Top rate (48%): over £125,140
These 2025/26 proposals increase the size of some lower bands but also keep higher and top rates above those in the rest of the UK, meaning many middle and higher earners in Scotland pay more income tax than they would on the same salary elsewhere in the UK.
3. Allowances and reliefs for 2025/26
Several key allowances in the wider income tax system now sit at lower levels than a few years ago and continue unchanged for 2025/26:
- Dividend Allowance: £500 tax-free dividend income; anything above this is taxed at dividend rates of 8.75%, 33.75% or 39.35% depending on your band.
- Capital Gains Tax Annual Exempt Amount: £3,000 for individuals and personal representatives; £1,500 for most trusts, now fixed at this lower level for 2024/25 and subsequent years.
- Married Couple’s Allowance (for those born before 6 April 1935): can reduce your tax bill by between £436 and £1,127 for 2025/26.
- Marriage Allowance (for most working-age couples): lets a lower-earning partner transfer £1,260 of their Personal Allowance, cutting the other partner’s tax by up to £252, if eligibility rules are met.
- Blind Person’s Allowance: an additional £3,130 on top of the Personal Allowance in 2025/26.
4. High Income Child Benefit Charge (HICBC): more families affected
The High Income Child Benefit Charge threshold rose in April 2024 and continues to apply in 2025/26. The key points now are:
- The charge starts when either partner’s adjusted net income exceeds £60,000.
- It fully claws back Child Benefit once income reaches £80,000.
- The charge is tapered: 1% of the Child Benefit received for every £200 of income between £60,000 and £80,000.
Because the £60,000–£80,000 range is not indexed and pay has generally risen, more higher-earning families are pulled into this charge each year.
How UK income tax works in 2025/26
Step 1: Work out your total taxable income
Add together all taxable income for the year (6 April 2025 to 5 April 2026):
- Employment and self-employment income
- Pensions (private and occupational)
- Rental income after allowable expenses
- Savings interest above the Personal Savings Allowance
- Dividends above the Dividend Allowance
Step 2: Deduct allowances and reliefs
From this gross figure you subtract:
- Your Personal Allowance (£12,570 for most people, reduced if your income is over £100,000 and down to zero at £125,140).
- Any extra allowances (Blind Person’s Allowance, Married Couple’s Allowance).
- Any qualifying pension contributions, Gift Aid and other reliefs that extend your basic rate band.
Step 3: Apply the right bands for your nation
Once you have your taxable income, tax is charged in layers:
- England, Wales, Northern Ireland: 20% basic rate, 40% higher rate, 45% additional rate.
- Scotland: six bands ranging from 19% to 48% as listed above.
Who will pay more tax in 2025/26?
People with pay rises that push them into higher bands
Because thresholds are frozen, many individuals receiving inflationary or promotion-related pay rises will pay more income tax even if their real spending power has not increased.
Higher earners between £60,000 and £80,000
These households are increasingly affected by the HICBC and may lose some or all of their Child Benefit entitlement.
Individuals with dividend or investment income
A reduced £500 Dividend Allowance and a £3,000 CGT exemption means more people face tax on small and moderate investment portfolios.
Scottish residents earning above £43,662
Middle-to-high earners in Scotland face higher rates than those in the rest of the UK due to the expanded band structure.
Practical example: a £48,000 earner
England/Wales/NI: Income of £48,000 in 2025/26 results in:
- Taxable income: £35,430
- All taxed at 20%
- Total income tax: £7,086
Scotland: Same income (£48,000) falls partly in the intermediate and higher bands:
- More income taxed at 21% and 42%
- Total income tax: higher than the rest of the UK
FAQ
1. Are income tax rates changing in 2025?
No. Rates remain the same across the UK, but Scotland has different bands and higher rates for some earners.
2. Why am I paying more tax if nothing changed?
Frozen thresholds mean rising wages push you into higher tax bands.
3. Will the Personal Allowance increase soon?
Not before April 2028, according to current legislation.
4. Is the £500 Dividend Allowance permanent?
It is fixed at £500 for 2024/25 onwards unless the government changes policy.
5. How do I reduce my income tax bill?
Methods include pension contributions, Gift Aid donations, and ensuring correct use of Marriage Allowance where eligible.
6. Does Scottish tax apply if I work in England?
It depends on where you live, not where your employer is based.
7. When will the next major tax review happen?
The UK Budget and Autumn Statement typically announce any future changes.
Conclusion
The 2025/26 income tax landscape looks unchanged at first glance, but frozen bands and lower allowances mean more people are paying more tax in real terms. Understanding your band, checking for eligible allowances and planning contributions can reduce your bill and help maintain your spending power in a period where costs continue to rise across the UK.
References
- gov.uk — Income Tax rates and bands
- HMRC — Personal Allowance, tax bands and thresholds
- HMRC — Dividend Allowance and CGT rules
- Scottish Government — Scottish Income Tax 2025/26
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