U.K. Income Tax Rates
Published on March 14, 2023
Updated on December 03, 2024
by Rose-ann De Villa, EA, CPA
Rose-ann De Villa, an IRS Enrolled Agent and CPA with 12 years of expat tax experience, specializes in U.S. tax preparation, tax planning, and tax advice for U.S. citizens and Green Card holders living and working in the UK.
Rose-ann has also talked about starting a business in the UK as a U.S. expat
Rose-ann has been mentioned in the Daily Express UK news wherein she talked about Stimulus payments and Child Tax Credit refunds for U.S. expats in the UK.
Table of Contents
Understanding the UK income tax rates is essential for everyone in the UK. It’s important to be aware of the current income tax rates and your personal tax allowance to ensure that you are paying the right amount of taxes.
What are the current income tax rates?
There are three different rates of earned income in the UK after the standard Personal Allowance of £12,570.
Here is the 2024-2025 income tax rates:
| Band | Taxable income | Tax rate |
| Personal allowance | Up to £12,570 | 0% |
| Basic rate | £12,571 to £50,270 | 20% |
| Higher rate | £50,271 to £125,140 | 40% |
| Additional rate | over £125,140 | 45% |
If you want to identify your tax band, first determine your personal allowance rate. Personal allowance is money you can have tax-free. Once you know your personal allowance rate, subtract this amount from your income to know your taxable income.
Why are tax rates important?
It’s good for individuals to know what tax bracket they are in, as it helps them figure out how much income tax they have to pay. This also enables them to manage their money more effectively.
If a person’s income increases, they may have to pay more taxes; if they earn less or their personal allowance increases, they may end up paying less.
What is my personal tax allowance?
Every UK citizen is entitled to a personal allowance, which is tax-free income you can have. Any income above your personal allowance will be taxed at the relevant income tax bracket.
If you earn below £100,000, your personal allowance will be £12,570. If you make above £100,000, your personal allowance decreases by £1 for every £2 you earn above £100,000 until it’s £0.
So your personal allowance will be £0 if you earn over £125,140.
I want to know more about US taxes abroad
What is my personal tax allowance if I’m married?
You might be able to use the marriage tax allowance, which lets couples share parts of their personal allowance.
Marriage allowance allows you to transfer £1,260 of your personal allowance to your spouse or civil partner, reducing their tax by up to £252 in the tax year (6 April to 5 April the following year).
The lower earner must normally have an income below £12,570.
What is my income tax band?
Once you’ve figured out your personal allowance, any extra income will be taxed. There are three marginal tax bands in England, Wales, and Northern Ireland from 2024-2025.
The basic rate is 20%, the higher rate is 40%, and the last rate is 45%. Your personal allowance will lower as your earnings reach £100,000.
Marginal tax bands mean you pay the set tax rate on a specific part of your income. For example, if you earn enough to be in the 40% tax bracket, then only that part of your salary is taxed at 40%. You still pay either 20% or 0% taxes at the lower end of your income.
What are the income tax bands in Scotland?
In Scotland, there are six marginal income tax bands.
2024-2025 Scotlang income tax rates:
| Band | Taxable income | Tax rate |
| Starter | £12,571 – £14,876 | 19% |
| Basic | £14,877 – £26,561 | 20% |
| Intermediate | £26,562 – £43,662 | 21% |
| Higher | £43,663 – £75,000 | 42% |
| Advanced | £75,001 – £125,140 | 45% |
| Top | Above £125,140 | 48% |
Is national insurance separate from income tax?
Apart from income tax, national insurance also affects an individual’s income. Most employees in the UK are required to pay national insurance, which is deducted from each payslip.
National insurance contributions depend on a person’s earnings, and they begin paying them from the age of 16. Once an individual reaches the state pension age, they stop paying national insurance.
Is national insurance separate from income tax?
Apart from income tax, national insurance also affects an individual’s income. Most employees in the UK are required to pay national insurance, which is deducted from each payslip.
National insurance contributions depend on a person’s earnings, and they begin paying them from the age of 16. Once an individual reaches the state pension age, they stop paying national insurance.
What is the current capital gains tax?
The capital gains tax will also depend on the individual’s income for the year. Generally, there is a different rate of tax on gains from residential property than on other assets.
2024-2025 UK capital gains tax rates:
| Annual income | Capital gains tax | For residential properties |
| £50,270 and below | 10% | 18% |
| Above £50,270 | 20% | 24% |
You get an ‘annual exempt amount’ every year, which allows you to have some cash without paying any tax. You must declare anything over that since it will be subject to capital gains tax.
You’ll likely have to pay capital gains tax if you sell or give away an asset valued at more than £3,000 from 2024 to 2025. Your main home and car are exempt from this – as well as lottery/pool winnings and a few other items.
It is important for individuals to note that after completing the sale of a property, they have 60 days to report and pay their capital gains tax to HM Revenue & Customs.
What is the current dividend tax?
2024-2025 dividend tax rates:
| Tax Band | Dividend tax rates (over the allowance) |
| Basic | 8.75% |
| Higher | 33.75% |
| Advanced | 39.35% |
You don’t pay tax on dividend income that falls within your Personal Allowance. Additionally, you receive a dividend allowance each year, and you only pay tax on any dividend income that exceeds this allowance.
Tax-free dividends are £500 from 6 April 2024 to 5 April 2025.
