Income tax explained: the Personal Allowance and the bands
Most people pay income tax in slices, not all at one rate. Knowing where the bands sit, and that they are frozen, explains why more of us are being pulled into higher tax.
Income tax feels more complicated than it is, largely because people imagine that crossing into a higher band taxes all of their income at the higher rate. It does not. You pay tax in slices, and only the slice inside each band is taxed at that band’s rate.
The Personal Allowance
The Personal Allowance is the amount you can earn each year before you pay any income tax at all. For 2026/27 it is £12,570. Earn less than that from all sources and you generally pay no income tax; earn more and only the amount above £12,570 is taxable.
There is a catch for higher earners. Once your income passes £100,000, the Personal Allowance is reduced by £1 for every £2 you earn above that level, disappearing entirely at £125,140. This creates an effective tax rate on that band of income that is higher than the headline rates, which is why £100,000 is such a significant number.
The bands (England, Wales and Northern Ireland)
For 2026/27 the main rates work like this. Income above the Personal Allowance up to £50,270 is taxed at the basic rate of 20%. Income from £50,271 to £125,140 is taxed at the higher rate of 40%. Income above £125,140 is taxed at the additional rate of 45%.
Because you are taxed in slices, someone earning £51,000 does not pay 40% on all of it. They pay nothing on the first £12,570, 20% on the chunk up to £50,270, and 40% only on the small slice above that. Scotland sets its own income tax bands and rates, so if you are a Scottish taxpayer, check the Scottish rates rather than these.
Why the freeze matters
Normally the Personal Allowance and thresholds would rise a little each year in line with inflation. Instead they have been frozen, and current policy holds them at these levels for several more years. When wages rise but thresholds do not, more of your pay falls into the taxable bands, and some people cross into the higher rate for the first time without their real spending power increasing at all. This is often called fiscal drag, and it is doing a lot of quiet work in raising tax.
What to check
The rates and thresholds above are for 2026/27 and can change at fiscal events, so confirm the current figures on GOV.UK before making decisions. It is also worth checking your tax code on your payslip, because an incorrect code is a common reason for paying too much or too little, and HMRC can correct it if you get in touch.