Income Tax Bands 2026/27
Applies to England, Wales & Northern Ireland. Scotland operates a separate 5-band structure — see the Key Points section below.
Basic Rate Band
£12,571 – £50,270 of income
Applies to the next £37,700 of income above the Personal Allowance. Most sole traders and directors pay predominantly at this rate.
Higher Rate Band
£50,271 – £125,140 of income
Threshold frozen since 2021. With average earnings rising, more business owners are entering this band each year through fiscal drag.
Additional Rate Band
Above £125,140 of income
No personal allowance applies at this level. The threshold was permanently reduced from £150,000 to £125,140 in April 2023.
Dividend Tax Rates — New Rates from April 2026
Dividends remain the most common way directors extract profit. The basic and higher rates increased by 2% from 6 April 2026.
| Band |
2025/26 |
2026/27 |
Per £1,000 |
| Within allowance |
0% |
0% |
£0 |
| Basic rate |
8.75% |
10.75% |
£107.50 |
| Higher rate |
33.75% |
35.75% |
£357.50 |
| Additional rate |
39.35% |
39.35% |
£393.50 |
The Dividend Allowance remains £500 for 2026/27. Dividends are always treated as the top slice of income, taxed after salary and other earnings. They do not attract National Insurance.
Worked Example — Director's Pay 2026/27
Director pays themselves a £12,570 salary and £30,000 in dividends. Total income: £42,570.
Salary (within Personal Allowance)
£0 tax
First £500 dividends (allowance)
£0 tax
Remaining £29,500 @ 10.75% basic rate
£3,171.25
Total income tax payable
£3,171.25
Effective rate on total income: 7.45%. Under the 2025/26 rate of 8.75%, tax would have been £2,581.25 — a difference of £590 more in 2026/27.
The £100,000 Tax Trap
An effective 60% marginal rate
on income between £100,000 – £125,140
For every £2 earned above £100,000, you lose £1 of your Personal Allowance. This means income in this band is taxed at 40% — plus you lose 20p of allowance worth of relief. The combined effect is a 60% effective marginal rate before National Insurance. Pension contributions are the most effective tool to manage this: paying into a pension reduces your adjusted net income, potentially restoring your full allowance.
60%
Effective marginal
rate in trap zone
£1,000
Personal Savings Allowance
Basic rate taxpayers. Reduced to £500 for higher rate payers. Additional rate taxpayers receive no allowance. Note: savings rates rise 2% from April 2027.
£1,260
Marriage Allowance
Transfer unused Personal Allowance to a spouse or civil partner — but only if the recipient pays no more than basic rate tax. Worth up to £252 saving per year.
£60,000
Annual Pension Allowance
Maximum you can contribute to a pension and receive tax relief. Capped at 100% of earnings if lower. Carries forward unused allowance from the prior 3 years.
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Fiscal Drag — The Hidden Tax Rise
All income tax bands and the Personal Allowance are frozen until April 2031. With wages rising at 4–5% annually, HMRC estimates that an additional 400,000–600,000 taxpayers are being pushed into the 40% higher rate band each year — without any change to the headline rates. Business owners giving pay rises, or drawing more from a growing company, should review their income structure annually to ensure they are not inadvertently crossing into a higher band.