Income tax thresholds in England, Wales and Northern Ireland have been frozen since 2021/22, and the Autumn 2025 Budget confirmed the freeze will now extend to April 2031. While the headline rates of 20%, 40% and 45% are unchanged for 2026/27, dividend tax rates rose from April 2026 — meaning many taxpayers will pay more without any change in their actual income.
UK income tax rates for 2026/27 are unchanged at 20% / 40% / 45%, with the personal allowance frozen at £12,570 until April 2031. The dividend tax rates increased from April 2026 (basic 10.75%, higher 35.75%, additional 39.35%), and the dividend allowance is £500. Threshold freezes mean fiscal drag continues to push more taxpayers into higher bands each year.
👉 Part of our pillar series: This article goes deep on one specific tax. For the full picture of how UK taxes fit together for individuals and small business owners, see our pillar guide: How Much Tax Do I Pay in the UK? 2026/27.
This guide sets out every key rate, allowance and threshold for 2026/27, with 2025/26 comparisons where they help.
⚠️ Dividend Rates Increased from 6 April 2026
- Basic rate: 8.75% → 10.75% (+2%)
- Higher rate: 33.75% → 35.75% (+2%)
- Additional rate: 39.35% (unchanged)
Personal Allowance and Income Tax Bands
(England, Wales and Northern Ireland)
| Allowance / Band | 2025/26 | 2026/27 |
|---|---|---|
| Personal allowance | £12,570 | £12,570 |
| Basic rate (20%) | £12,571 – £50,270 | £12,571 – £50,270 |
| Higher rate (40%) | £50,271 – £125,140 | £50,271 – £125,140 |
| Additional rate (45%) | Above £125,140 | Above £125,140 |
| Personal allowance taper | £1 per £2 above £100,000 | £1 per £2 above £100,000 |
| Marriage allowance | £1,260 transferable | £1,260 transferable |
| Blind person's allowance | £3,130 | £3,250 ↑ |
⚠️ The 60% Tax Trap — £100,000 to £125,140
The personal allowance fully tapers away at £125,140 of adjusted net income. Between £100,000 and £125,140, the marginal income tax rate is effectively 60% — making this a critical planning band. Pension contributions via salary sacrifice, Gift Aid donations and other adjustments that reduce adjusted net income below £100,000 are among the most powerful tax planning interventions available.
Dividend Tax Rates
From April 2026, the basic and higher rate dividend tax rates increased by 2 percentage points each. The additional rate is unchanged.
| Dividend Rate | 2025/26 | 2026/27 |
|---|---|---|
| Dividend allowance (0%) | £500 | £500 |
| Basic rate | 8.75% | 10.75% ↑ |
| Higher rate | 33.75% | 35.75% ↑ |
| Additional rate | 39.35% | 39.35% |
💼 What This Means for Owner-Managed Company Directors
For directors paying themselves through salary and dividends, the 2% increase in dividend rates meaningfully shifts the optimal extraction mix. Combined with frozen income tax thresholds and a 25% main corporation tax rate, employer pension contributions and well-structured salary now look more attractive than dividends for higher-rate taxpayers who can afford to defer income. Use our salary vs dividend optimiser to model your 2026/27 position.
Savings Allowance and Starting Rate
| Item | 2025/26 | 2026/27 |
|---|---|---|
| Personal Savings Allowance — basic rate taxpayer | £1,000 | £1,000 |
| Personal Savings Allowance — higher rate taxpayer | £500 | £500 |
| Personal Savings Allowance — additional rate taxpayer | Nil | Nil |
| Starting rate for savings band (0%) | £5,000 | £5,000 |
The starting rate for savings (0% on up to £5,000 of savings income) is only available if non-savings income does not exceed the personal allowance plus £5,000. For most earners with salary or pension income, this rate is not accessible — but it can be valuable for those with low earned income and significant savings interest.
Pay the Right Amount of Tax — and No More
Personal tax planning for higher earners, landlords and business owners. Free review.
National Insurance — Headline Rates
| NI Rate | 2025/26 | 2026/27 |
|---|---|---|
| Employee Class 1 — main rate | 8% (£242 – £967/week) | 8% (£242 – £967/week) |
| Employee Class 1 — above upper earnings limit | 2% | 2% |
| Employer Class 1 rate | 15% | 15% |
| Employer secondary threshold | £96/week | £96/week |
| Class 4 — self-employed (main rate) | 6% (£12,570 – £50,270) | 6% (£12,570 – £50,270) |
| Class 4 — above upper profits limit | 2% | 2% |
NIC rates are unchanged for 2026/27. The employer rate of 15% (increased from 13.8% in April 2025) and the reduced secondary threshold of £96/week (down from £175/week) remain in force.
Scottish Income Tax 2026/27
Scotland sets its own rates and bands on non-savings, non-dividend income. The 2026/27 Scottish bands are:
| Scottish Band | Rate | Income Range (after personal allowance) |
|---|---|---|
| Starter rate | 19% | £0 – £2,827 |
| Basic rate | 20% | £2,828 – £14,921 |
| Intermediate rate | 21% | £14,922 – £31,092 |
| Higher rate | 42% | £31,093 – £62,430 |
| Advanced rate | 45% | £62,431 – £125,140 |
| Top rate | 48% | Above £125,140 |
🏴 Scottish Taxpayers: Key Points
- Personal allowance, savings allowance and dividend rates remain UK-wide — Scotland cannot vary these
- Above £43,663, Scottish income tax exceeds the UK rate by 2% (higher rate) and at the top by 3%
- Scottish taxpayers pay UK NIC rates — not Scottish rates
- Always confirm the current Scottish Budget settlement before relying on these figures
Trading, Property and Rent-a-Room Allowances
📋 Three Useful Small Allowances
- Trading allowance — £1,000: covers gross income from self-employment or casual services. Cannot be used against income from your employer, your partnership, or a close company you participate in. If income exceeds £1,000, you can deduct actual expenses or elect to use the allowance instead.
- Property allowance — £1,000: covers gross rental income. Cannot be used alongside Rent-a-Room relief, or where finance cost restrictions apply to the property.
- Rent-a-Room relief — £7,500: up to £7,500 of furnished room rental income from your only or main residence is exempt from income tax. Above £7,500 you can elect to be taxed on the excess only, or on the full rent less actual expenses — whichever is lower.
What's Coming Next
Several reforms announced in the Autumn 2025 Budget take effect from April 2027 and beyond — worth modelling well in advance:
| Change | Effective Date |
|---|---|
| Separate UK rates for property income — basic 22%, higher 42%, additional 47% | April 2027 |
| Most unused pension funds into IHT scope | 6 April 2027 |
| Cash ISA limit reduced from £20,000 to £12,000 for under-65s | April 2027 |
| Salary sacrifice pension NI cap of £2,000 per year | April 2029 |
✅ Key Takeaways — 2026/27
- Frozen thresholds = silent tax rises — a pay rise of CPI inflation now drags more income into higher bands every year until 2031
- Watch the £100,000 cliff — the 60% effective marginal rate makes salary sacrifice pension contributions a very effective intervention
- Higher dividend rates from April 2026 change the salary-versus-dividend calculation for owner-managers — model your 2026/27 mix now
- Use every allowance available each year: £500 dividend, £1,000 PSA, £1,000 trading, £1,000 property, £20,000 ISA, £60,000 pension — these compound
- Scottish taxpayers pay 2–3% more on income above £43,663 compared to UK rates
- Plan ahead for the April 2027 property income rate changes — rental income will be taxed more heavily for higher-rate taxpayers
Frequently Asked Questions
What is the personal allowance for 2026/27?
The personal allowance for 2026/27 remains at £12,570 — unchanged since 2021/22 and now confirmed frozen until April 2031. It tapers by £1 for every £2 of adjusted net income above £100,000, fully disappearing at £125,140.
What are the dividend tax rates for 2026/27?
From 6 April 2026, dividend tax rates increased: basic rate 10.75% (was 8.75%), higher rate 35.75% (was 33.75%). The additional rate remains 39.35%. The dividend allowance remains £500.
What is the 60% tax trap?
Between £100,000 and £125,140, the personal allowance tapers away at £1 for every £2 of income above £100,000. Combined with the 40% higher rate, this creates an effective marginal rate of 60% on income in this range. Pension contributions and salary sacrifice are effective ways to reduce income below £100,000.
📚 Related reading
- Top 10 UK Business Tax Mistakes — The most expensive errors UK business owners make — and how to spot them in your own affairs.
- UK Employer Tax Guide 2026/27 — For employers, NIC at 15%, Employment Allowance at £10,500 and P11D rules round out the personal tax picture.
Shamim works with HNW individuals, business owners and internationally mobile clients to make full use of every allowance available. With thresholds frozen until 2031 and dividend rates rising, structured annual tax planning matters more than ever.
Need help with your personal tax position?
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