UK Tax Guide [2026]: Rates, Brackets, Allowances, and Section 24 Rules

Introduction: Navigating the UK Tax System in 2026

Navigating the UK tax landscape can be complicated, especially with recent changes to allowances, bands, and national insurance contributions. Whether you are an employee under PAYE, a self-employed freelancer, a landlord managing a buy-to-let portfolio, or a business owner, understanding how these rules apply is critical to managing your finances and maximizing tax efficiency.

This comprehensive guide brings together the core rules, rates, and allowances for UK taxpayers in 2026.

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1. UK PAYE Income Tax & Take-Home Salary

If you are employed, your tax is deducted automatically by your employer via the PAYE (Pay As You Earn) system.

The Personal Allowance

The standard tax-free Personal Allowance remains at £12,570. Income up to this amount is received tax-free. Note that the Personal Allowance is reduced by £1 for every £2 of adjusted net income over £100,000, meaning it disappears completely once income reaches £125,140.

Income Tax Brackets (England, Wales, and Northern Ireland)

Once your income exceeds the Personal Allowance, it is taxed according to the following bands:

Band	Income Range	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%

Note: Scotland has different income tax bands and rates ranging from 19% to 48%.

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2. National Insurance Contributions (NICs)

National Insurance is paid by employees, employers, and the self-employed to build entitlement to the State Pension and other benefits.

For Employees (Class 1)

• Primary Threshold: Employees pay Class 1 NICs on earnings above £12,570.
• Main Rate: The primary rate is 8% on earnings between the Primary Threshold (£242 per week) and the Upper Earnings Limit (£967 per week).
• Upper Rate: Earnings above the Upper Earnings Limit are taxed at 2%.

For the Self-Employed (Class 4)

Self-employed individuals with profits over £12,570 pay Class 4 NICs:

• Main Rate: 6% on profits between £12,570 and £50,270.
• Upper Rate: 2% on profits above £50,270.
• Class 2 NICs have been effectively abolished for most self-employed workers, though voluntary payments can still be made to maintain state pension record continuity.

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3. Capital Gains Tax (CGT) Brackets & Exemptions

Capital Gains Tax (CGT) is charged when you dispose of (sell) an asset that has increased in value, such as shares or a buy-to-let property. You only pay tax on the gain (profit), not the total amount of money you receive.

The Annual Exempt Allowance

The tax-free CGT allowance is set at £3,000 for individuals. Gains below this amount are completely tax-exempt.

2026 CGT Rates by Asset Type

CGT rates depend on your income tax bracket and the type of asset sold:

Shares & Other Financial Assets

• Basic Rate Taxpayer: 10% CGT.
• Higher/Additional Rate Taxpayer: 20% CGT.

Residential Properties (Non-Private Residence Relief)

If you sell a second home or buy-to-let property, higher rates apply:

• Basic Rate Taxpayer: 18% CGT.
• Higher/Additional Rate Taxpayer: 24% CGT.

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4. Section 24 Interest Tax Credit Rules for Landlords

Section 24 of the Finance (No. 2) Act 2015 significantly changed how residential landlords are taxed in the UK.

The Rule Change

Under Section 24, residential property landlords can no longer deduct mortgage interest, loan fees, or finance costs directly from their rental income before calculating tax. Instead, you are taxed on gross rental receipts, and then receive a basic rate tax credit to offset your final bill.

The 20% Interest Tax Credit

HMRC provides a tax credit equal to 20% of your mortgage interest expenses. For higher-rate (40%) and additional-rate (45%) taxpayers, this represents a major tax hike. In some cases, landlords have faced tax liabilities that exceed their actual cash-flow profits.

Example Mitigation Strategies

1. Move to a Limited Company (Incorporation): Many landlords transfer their property portfolios into limited company structures. Mortgage interest remains fully deductible as a business expense for corporations.
2. Utilize Spousal Allowances: Transferring property ownership to a spouse in a lower tax bracket can help reduce the overall tax burden.

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5. UK Dividend Tax & Allowances

If you own shares in a company or operate as a director of a limited company, you may receive dividend payments.

The Dividend Allowance

The tax-free Dividend Allowance is set at £500. Dividends within this allowance are completely tax-free.

Dividend Tax Rates

Any dividends above the £500 allowance are taxed based on your income band:

• Basic Rate Band: 8.75% tax.
• Higher Rate Band: 33.75% tax.
• Additional Rate Band: 39.35% tax.

Dividends received within tax-sheltered accounts like an Individual Savings Account (ISA) are exempt from dividend tax.

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6. UK Stamp Duty Land Tax (SDLT)

When you buy a property or land over a certain price in England and Northern Ireland, you must pay Stamp Duty Land Tax (SDLT). (Scotland uses Land and Buildings Transaction Tax, and Wales uses Land Transaction Tax).

Standard Residential SDLT Thresholds

The threshold at which SDLT starts is £250,000 for residential properties.

• Up to £250,000: 0% SDLT.
• £250,001 to £925,000: 5%.
• £925,001 to £1.5 million: 10%.
• Above £1.5 million: 12%.

First-Time Buyer Relief

First-time buyers pay 0% SDLT on properties up to £425,000. For properties costing between £425,001 and £625,000, a 5% rate applies to the amount above £425,000. Properties over £625,000 do not qualify for first-time buyer relief.

Surcharges (Second Homes & Buy-to-Let)

If you buy an additional residential property (such as a holiday home or buy-to-let), you must pay an extra 3% surcharge on top of the standard SDLT rates.

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7. UK Pension Tax Relief & Annual Contribution Limits

Contributing to a registered pension scheme is one of the most tax-efficient ways to save for retirement due to government tax relief.

The Annual Allowance

The maximum amount you can save into your pension each tax year while still receiving tax relief is £60,000 (or 100% of your earnings, whichever is lower). This allowance is tapered down for high earners with adjusted income above £260,000, down to a minimum of £10,000.

Tax Relief Mechanism

The government adds tax relief to your pension contributions at your marginal rate of tax:

• Basic Rate Taxpayers get a 20% tax relief top-up.
• Higher Rate Taxpayers can claim an additional 20% (total 40%) through their Self-Assessment tax return.
• Additional Rate Taxpayers can claim an additional 25% (total 45%).

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8. UK Student Loan Repayments

If you received a student loan from the Student Loans Company (SLC), repayments are automatically deducted from your salary once you exceed specific income thresholds.

Repayment Plans and Thresholds

The repayment thresholds and rates for 2026 are structured as follows:

Repayment Plan	Annual Income Threshold	Repayment Rate
Plan 1 (Pre-2012 / Northern Ireland)	£22,015	9% above threshold
Plan 2 (2012 - 2023 / England & Wales)	£27,295	9% above threshold
Plan 4 (Scottish student loans)	£31,395	9% above threshold
Plan 5 (Post-Sept 2023 / England)	£25,000	9% above threshold
Postgraduate Loan	£21,000	6% above threshold

If you have multiple loans (e.g., Plan 2 and a Postgraduate Loan), repayments are calculated concurrently, meaning you could pay a combined 15% on income above the thresholds.

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9. UK Corporation Tax & Marginal Relief

If you run a limited company, your company must pay Corporation Tax on its profits.

Corporation Tax Rates

• Small Profits Rate: 19% on corporate profits up to £50,000.
• Main Rate: 25% on corporate profits over £250,000.

Marginal Relief

For companies with profits between £50,000 and £250,000, a tapered tax rate applies using a marginal relief calculation. This effectively bridges the gap between the 19% and 25% tax rates.

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10. UK Inheritance Tax (IHT) & Nil Rate Bands

Inheritance Tax is a tax on the estate (property, money, and possessions) of someone who has died.

The Standard Nil Rate Band

The standard tax-free threshold is £325,000. If the value of your estate is below this, no Inheritance Tax is owed.

Residence Nil Rate Band (RNRB)

If you pass your main home to your direct descendants (children or grandchildren), you can claim an additional £175,000 residence allowance. This increases your combined tax-free threshold to £500,000.

Tax Rates and Exemptions

• Main Rate: Estate value above the thresholds is taxed at 40%.
• Spousal Exemption: There is no inheritance tax when you leave everything to a spouse or civil partner. Their unused nil-rate bands also transfer to the surviving partner, potentially doubling their tax-free threshold to £1 million.
• Charitable Donations: If you leave at least 10% of your net estate to charity, the overall IHT rate on the remaining taxable estate is reduced to 36%.

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Action Plan: Model Your Tax Scenarios

Understanding these thresholds is the first step toward effective tax planning. Do not rely on estimates:

1. Use our UK PAYE Salary & Take-Home Tax Calculator to check your net take-home salary.
2. Estimate stamp duty using the UK Stamp Duty Land Tax (SDLT) Calculator.
3. If you are a property investor, check your net yields with the UK Buy-to-Let Mortgage & Tax Relief Calculator.