If you’ve ever looked at your payslip, your dividend statement or your buy-to-let income and wondered exactly how much tax you’re really paying — you’re not alone. The honest answer for most people in the UK is: more than you think, and across more taxes than you realise.
Quick answer: A typical UK higher-rate taxpayer faces income tax (20%/40%/45%), National Insurance (8% / 2%), dividend tax (10.75%/35.75%/39.35% from April 2026), capital gains tax (18%/24%), inheritance tax (40% on estates above £325k–£500k), stamp duty when buying property (5–17%), council tax (£1,200–£5,000/year) and VAT inside most spending. The combined effective rate on a multi-source income often exceeds 30% before council tax and VAT.
This guide pulls everything into one place. It covers the 2026/27 tax year (6 April 2026 to 5 April 2027) and walks through the main taxes that apply to UK individuals: income tax, National Insurance, dividend tax, capital gains tax, inheritance tax, stamp duty and council tax. For each one, you’ll see the rates, the thresholds, who pays what and a worked example.
We’ve split the deeper analysis of each tax into separate articles linked throughout — so you can read the full picture here, or jump to the deep-dive on whichever tax matters most to you.
The big picture: what taxes can you face?
Most UK adults face a combination of these:
| Tax | What triggers it | Typical 2026/27 rate |
|---|---|---|
| Income Tax | Earnings, pensions, rental income | 20%, 40% or 45% |
| National Insurance | Employment, self-employment | 8% (employee), 6% (self-employed) |
| Dividend Tax | Dividends from shares or your own company | 10.75%, 35.75% or 39.35% |
| Capital Gains Tax | Selling assets at a profit | 18% or 24% |
| Inheritance Tax | Passing wealth on at death | 40% above thresholds |
| Stamp Duty (SDLT) | Buying property in England or NI | 0–17% depending on value |
| Council Tax | Owning or renting a home | Varies by band and council |
| VAT | Most purchases of goods and services | 20% standard, 5% reduced, 0% zero-rated |
The total bill depends on what income you earn, what assets you own, and what life events happen during the year. Let’s go through each one.
1. Income Tax — the big one
Income tax is what most people think of when they hear “tax”. It applies to your earnings from employment, self-employment profits, pensions, rental income, savings interest above the allowance, and various other income sources.
2026/27 rates (England, Wales and Northern Ireland)
| Band | Income range | Rate |
|---|---|---|
| Personal Allowance | £0 – £12,570 | 0% |
| Basic rate | £12,571 – £50,270 | 20% |
| Higher rate | £50,271 – £125,140 | 40% |
| Additional rate | £125,141+ | 45% |
The Personal Allowance of £12,570 is frozen until at least April 2031. The basic-rate band is also frozen until then. As your salary rises with inflation, more of it gets pulled into the higher tax bands without rates ever officially “going up”. Economists call this “fiscal drag” — and it’s one of the biggest stealth tax rises of the last decade.
Scottish taxpayers pay income tax at rates set by the Scottish Parliament. The bands and rates are different (and generally higher) for middle and upper earners. NIC is identical across the UK.
The 60% trap nobody talks about
If your income is between £100,000 and £125,140, you face an effective tax rate of around 60% on every additional pound. This is because the £12,570 Personal Allowance is reduced by £1 for every £2 of income above £100,000, disappearing entirely at £125,140.
Worked example: You earn £105,000. For every extra £1,000 you earn:
- You pay £400 income tax (40% higher rate)
- You lose £500 of Personal Allowance, which becomes taxable at 40% = £200 extra
- Total tax on that £1,000 = £600 (effective 60% rate)
This trap catches a lot of senior employees, contractors and consultants who happen to earn just over £100,000. Pension contributions are usually the most efficient way to manage it — every £1 contributed reduces “adjusted net income” and helps protect the Personal Allowance.
Worked income tax example: £75,000 salary
| Calculation | Amount |
|---|---|
| Salary | £75,000 |
| Less Personal Allowance | (£12,570) |
| Taxable income | £62,430 |
| Basic rate (£37,700 × 20%) | £7,540 |
| Higher rate (£24,730 × 40%) | £9,892 |
| Total income tax | £17,432 |
That’s an effective rate of 23.2% on the gross salary. Add 8% NIC on most of it and the real take-home percentage drops further.
👉 Deep-dive: For the full income tax breakdown — fiscal drag, marginal rate planning, and worked examples for every income bracket — read UK Income Tax Rates and Allowances 2026/27. Or use our Income Tax Calculator to work out your own position instantly.
Free Tax Review
Across all the taxes covered here — income tax, dividends, CGT, property — we’ll review your full position in a discovery call. No obligation.
2. National Insurance — the tax that pretends not to be a tax
National Insurance is technically a “contribution” to fund state benefits and pensions, but functionally it works like a second income tax. For 2026/27:
Class 1 NIC — Employees
| Earnings range (per week) | Rate |
|---|---|
| Up to £242 | 0% |
| £242.01 – £967 | 8% |
| Above £967 | 2% |
Self-employed (Class 4)
Self-employed individuals pay Class 4 NIC on profits:
- £0 – £12,570: 0%
- £12,571 – £50,270: 6%
- Above £50,270: 2%
Class 2 NIC (the old £3.45/week flat charge) was abolished from April 2024, though voluntary contributions are still possible to maintain state pension entitlement.
Combined income tax + NIC marginal rates
This is where the picture gets uncomfortable:
| Salary band | Income tax | NIC | Combined marginal rate |
|---|---|---|---|
| £12,571 – £50,270 | 20% | 8% | 28% |
| £50,271 – £100,000 | 40% | 2% | 42% |
| £100,001 – £125,140 | 60% (effective) | 2% | 62% |
| £125,141+ | 45% | 2% | 47% |
If you’ve ever wondered why a £10,000 pay rise feels like £5,000 in your bank account — this is why.
3. Dividend Tax — went up in April 2026
If you hold shares directly, run a limited company and pay yourself dividends, or invest through a non-ISA/non-pension wrapper, you’ll face dividend tax on dividend income above the £500 allowance.
2026/27 rates (after the April 2026 increase)
| Band | Rate (was 2025/26) | Rate (now 2026/27) |
|---|---|---|
| Dividend allowance | First £500 | First £500 (no change) |
| Basic rate (ordinary) | 8.75% | 10.75% |
| Higher rate (upper) | 33.75% | 35.75% |
| Additional rate | 39.35% | 39.35% (no change) |
The basic and higher rates went up by 2 percentage points from 6 April 2026. The additional rate is unchanged. If you’re a higher-rate director paying yourself £30,000 in dividends, you’re roughly £590 worse off this year compared to 2025/26.
Worked example: limited company director
Sarah runs a company and pays herself a £12,570 salary plus £40,000 in dividends. Her tax for 2026/27:
| Item | Amount |
|---|---|
| Salary | £12,570 (uses Personal Allowance, no income tax) |
| Dividends | £40,000 |
| Less dividend allowance | (£500) |
| Taxable dividends | £39,500 |
| In basic rate band (£37,700 × 10.75%) | £4,053 |
| In higher rate band (£1,800 × 35.75%) | £644 |
| Total dividend tax | £4,697 |
Salary plus dividends is still typically more efficient than drawing everything as salary — but the gap is narrower than it was, and getting narrower each year.
👉 Deep-dive: For the full guide to dividend tax for limited company directors — including the salary vs dividends decision after the April 2026 rise and 5 mitigation strategies — read Dividend Tax 2026/27: Director’s Guide.
4. Capital Gains Tax (CGT) — when you sell
CGT applies when you sell or “dispose of” an asset for more than you paid for it. It catches sales of investment property, shares outside an ISA, business assets, valuable items (over £6,000) and crypto.
2026/27 rates and allowance
| Asset type | Basic rate band | Higher/additional rate band |
|---|---|---|
| Residential property | 18% | 24% |
| Other assets | 18% | 24% |
| Annual exempt amount | £3,000 (down from £12,300 in 2022/23) | |
The annual exemption has been slashed from £12,300 to £3,000 over two years — meaning many more disposals now trigger CGT. The 60-day reporting rule also applies to UK residential property sales: you must report and pay any CGT within 60 days of completion, separately from your annual tax return.
Worked example: selling a buy-to-let
Mike bought a buy-to-let in 2010 for £180,000. He sells in 2026/27 for £390,000 with £6,700 of selling costs and £18,000 of capital improvements made along the way. He’s a higher-rate taxpayer using his full £3,000 AEA elsewhere.
| Calculation | Amount |
|---|---|
| Net proceeds | £383,300 |
| Less original cost + improvements | (£204,000) |
| Chargeable gain | £179,300 |
| Less AEA | (£3,000) |
| Taxable gain | £176,300 |
| CGT at 24% | £42,312 |
That’s a substantial bill — and the AEA reduction means it’s roughly £2,200 higher than the same disposal would have triggered three years ago.
👉 Deep-dives: For property CGT (PRR, lettings relief, 60-day reporting), read CGT on Property Disposals 2026/27. For shares, crypto and BADR, read CGT on Shares, Crypto & Business Assets 2026/27. Also: CGT Calculator.
5. Inheritance Tax (IHT) — the 40% catcher
IHT is paid on the value of someone’s estate when they die, above certain thresholds.
2026/27 thresholds and rates
| Item | Amount |
|---|---|
| Nil-rate band (per person) | £325,000 |
| Residence nil-rate band (per person) | up to £175,000 |
| Spouse exemption | 100% |
| Annual gift exemption | £3,000 per donor |
| IHT rate above thresholds | 40% |
A married couple can typically pass on £650,000 to £1m between them tax-free, depending on whether the residence nil-rate band applies (it tapers above £2m estates).
What’s changing in 2026
From 6 April 2026, Business Property Relief (BPR) and Agricultural Property Relief (APR) are capped at £1m per person at 100% relief. Anything above the cap qualifies for only 50% relief. This affects landlords with substantial trading-side activities, business owners, and farming families.
The seven-year rule
Gifts made more than 7 years before death fall outside the estate. Between 3 and 7 years, taper relief reduces the IHT rate. This makes lifetime gifting one of the most effective IHT planning tools — but only if you have the time and don’t need the assets back.
👉 Deep-dive: For detailed IHT planning including lifetime gifts, trusts, and the BPR cap changes from April 2026, read our UK Inheritance Tax Guide 2026/27. Also: Inheritance Tax Estimator.
6. Stamp Duty Land Tax (SDLT) — when you buy property
If you buy property in England or Northern Ireland, SDLT applies. (Scotland uses LBTT, Wales uses LTT — different rates, similar concept.)
2026/27 rates — main residence
| Property value | Rate |
|---|---|
| Up to £125,000 | 0% |
| £125,001 – £250,000 | 2% |
| £250,001 – £925,000 | 5% |
| £925,001 – £1,500,000 | 10% |
| Above £1,500,000 | 12% |
Additional dwellings (buy-to-let, second homes)
Add 5% to every band (up from 3% before 31 October 2024). This is one of the biggest cost increases for landlords in years. Non-residents pay an additional 2% on top.
Worked example: £400,000 buy-to-let (UK resident)
| Band | Calculation | SDLT |
|---|---|---|
| First £125,000 at 5% | £125,000 × 5% | £6,250 |
| £125,000 at 7% | £125,000 × 7% | £8,750 |
| £150,000 at 10% | £150,000 × 10% | £15,000 |
| Total SDLT | Effective 7.5% | £30,000 |
The same purchase in 2022/23 would have triggered £22,000 — a 36% increase in acquisition cost on the same property.
👉 Deep-dive: For the full SDLT breakdown including portfolio purchases, the 17% corporate rate and the abolition of MDR, read our SDLT Planning Guide 2026/27. Also: SDLT Calculator.
7. Council Tax — the local one
Council tax is set by your local authority and depends on which “band” your property falls into (A to H in England, A to I in Wales). Bands are based on property values from 1991 in England — a system that’s increasingly out of date but remains in force.
Typical 2026/27 ranges:
| Band | Approximate value (1991 prices) | Annual cost (varies by council) |
|---|---|---|
| A | Up to £40,000 | £1,200 – £1,800 |
| D | £68,001 – £88,000 | £1,800 – £2,500 |
| H | Over £320,000 | £3,600 – £5,000 |
Council tax is paid by the occupier (renters or owner-occupiers), not the property owner — except during void periods on rental property. Common discounts include the 25% single person discount, full exemption for full-time students, and Council Tax Support for low-income households.
8. VAT — the one you barely notice
Value Added Tax is added to most goods and services at:
- 20% standard rate (most things)
- 5% reduced rate (domestic energy, children’s car seats, some renovations)
- 0% zero rate (most food, children’s clothing, books, public transport)
- Exempt (financial services, education, healthcare)
Individuals don’t normally pay VAT directly to HMRC — it’s collected by businesses. But it’s a real cost in your spending: every £100 you spend on most consumer goods has roughly £16.67 of VAT inside the headline price.
If you run a business with turnover above £90,000, you must register for VAT.
What’s coming in 2027 and beyond
A few changes already announced that affect what you pay:
- Property income split rates from 6 April 2027: rental income will have its own rates of 22% (basic), 42% (higher) and 47% (additional) — 2 percentage points above standard income tax rates. This is a meaningful tax rise for landlords.
- Savings income split rates from 6 April 2027: same 2-point uplift on interest income above the savings allowance.
- MTD for Income Tax: live April 2026 for landlords and sole traders earning above £50,000; threshold drops to £30,000 in April 2027 and £20,000 in April 2028. Not a tax rise, but a major compliance change.
- All major thresholds frozen until 2031: more fiscal drag every year.
Putting it together: a real-world example
Let’s combine multiple taxes for a representative case.
Profile: David, 45, higher-rate earner. Salary £85,000. One buy-to-let producing £18,000 rent with £8,400 mortgage interest. £30,000 dividend income from his investments. Sold £25,000 of shares this year at a £8,000 gain.
| Tax | Calculation | Amount |
|---|---|---|
| Income tax on salary | £85,000 → after PA, basic and higher rate bands | ~£20,432 |
| NIC on salary | 8% on most, 2% above £50,270 | ~£3,718 |
| Income tax on rental profit (Section 24) | £14,500 profit, 40% rate, less 20% credit on £8,400 interest | ~£4,120 |
| Dividend tax | £30,000 less £500 allowance, mostly higher rate | ~£10,500 |
| CGT on shares | £8,000 – £3,000 AEA, at 24% | ~£1,200 |
| Total annual tax (excluding council tax & VAT) | ~£39,970 |
That’s an effective tax rate of around 30% on his total economic activity for the year — and that’s before he’s paid any council tax or VAT on his spending.
Most people in David’s position dramatically underestimate their total tax exposure because they only look at one figure (PAYE) on their payslip. The full picture is always bigger.
What you can actually do about it
Tax planning isn’t about avoiding tax — it’s about not paying more than the law actually requires. A few perfectly legitimate areas where most people leave money on the table:
- Pension contributions — often the single most powerful tax-relief lever, especially for higher earners and those in the 60% trap zone
- ISA wrappers — £20,000 a year of tax-free investing per adult; dividends and capital gains shielded permanently
- Marriage Allowance — transfer £1,260 of unused Personal Allowance to a basic-rate spouse, saving up to £252 per year
- Salary sacrifice — pension, electric vehicles, childcare via legacy schemes — reduces both income tax and NIC
- Spouse income shifting — joint property ownership with Form 17 declaration, dividend planning across two basic-rate bands
- CGT timing — spreading disposals across tax years to use multiple AEAs
- Pre-MTD ITSA preparation — getting bookkeeping and software in place before April 2026 (or 2027/2028 as the threshold drops)
- Inheritance tax planning — annual gift exemptions, seven-year-rule lifetime gifts, and use of both spouses’ nil-rate bands
How much of this matters for your situation depends on your income, assets, family setup, and goals. The numbers above are general — real planning is always specific.
Frequently asked questions
How much income tax do I pay in the UK in 2026/27?
UK income tax for 2026/27 is 20% on income from £12,571–£50,270 (basic rate), 40% from £50,271–£125,140 (higher rate), and 45% above £125,140 (additional rate). The personal allowance of £12,570 is frozen until April 2031. Scottish taxpayers face different rates set by the Scottish Parliament.
Why is my effective tax rate so high between £100,000 and £125,140?
This is the “60% trap” — your £12,570 personal allowance is reduced by £1 for every £2 earned above £100,000, disappearing at £125,140. Combined with the 40% higher rate, this creates an effective marginal rate of around 60% on income in this band. Pension contributions are usually the most efficient way to manage it.
What is the dividend tax rate in 2026/27?
From 6 April 2026, dividend tax rates are 10.75% (basic rate), 35.75% (higher rate) and 39.35% (additional rate) — a 2 percentage point increase on the basic and higher rates. The £500 dividend allowance is unchanged. The additional rate is unchanged from 2025/26.
How much capital gains tax do I pay in 2026/27?
CGT on residential property is 18% (basic rate band) or 24% (higher/additional rate band). The same rates apply to other assets including shares and crypto. The annual exempt amount is £3,000 — down from £12,300 in 2022/23. UK residential property disposals must be reported and tax paid within 60 days of completion.
What is the inheritance tax rate in the UK?
IHT is charged at 40% on the value of an estate above the nil-rate band of £325,000 per person. The residence nil-rate band of up to £175,000 may also be available where a home is left to direct descendants. Married couples can typically pass on £650,000–£1m tax-free between them. From April 2026, Business Property Relief is capped at £1m at 100% relief.
What changes are coming to UK tax from April 2027?
From 6 April 2027, property income will have separate (higher) tax rates: 22% basic, 42% higher, 47% additional — 2 percentage points above standard income tax rates. Savings income rates will also rise by 2 percentage points across all bands. The MTD ITSA threshold drops to £30,000 in April 2027 and £20,000 in April 2028.
📚 Related reading
- Buy-to-Let: Personal Name vs Limited Company 2026/27 — If you have rental property, the structure (personal vs limited company) significantly changes your tax bill.
- The Top 10 UK Business Tax Mistakes — Most costly tax errors aren’t about complex schemes — they’re basic mistakes anyone can avoid.
- Non-Resident UK Property Tax — If you own UK property but live abroad, the Non-Resident Landlord Scheme and 60-day CGT rules apply.