Understanding how income tax works doesn't have to be complicated. This guide breaks down the UK tax system in simple terms, so you know exactly how much of your salary you'll take home.
What is Income Tax?
Income tax is money the government takes from your earnings to pay for public services like the NHS, schools, and infrastructure. In the UK, it's calculated using a system of tax bands, which means different portions of your income are taxed at different rates.
The Personal Allowance
The first £12,570 you earn each year is tax-free. This is called your Personal Allowance. You only pay tax on earnings above this amount.
Example
If you earn £30,000 per year, only £17,430 (£30,000 - £12,570) is taxable.
Important: If you earn over £100,000, your Personal Allowance reduces by £1 for every £2 you earn above this threshold. Once you earn £125,140 or more, you lose your Personal Allowance entirely.
Tax Bands for 2025/26
After your Personal Allowance, your income is taxed in bands:
- Basic Rate (20%): £12,571 to £50,270
- Higher Rate (40%): £50,271 to £125,140
- Additional Rate (45%): Over £125,140
How It Works in Practice
You don't pay the same rate on all your income. Instead, each band applies only to the income that falls within that range.
Example: £50,000 Salary
- First £12,570: Tax-free (Personal Allowance) = £0
- Next £37,430: Taxed at 20% = £7,486
- Total Tax: £7,486
- Take-Home (before NI): £42,514
National Insurance
On top of income tax, you also pay National Insurance (NI) if you're under State Pension age. For 2025/26:
- 12% on earnings between £12,570 and £50,270
- 2% on earnings above £50,270
National Insurance helps fund your State Pension and other benefits like the NHS.
Other Deductions
Pension Contributions
If you pay into a workplace pension through salary sacrifice, this reduces your taxable income. For example, if you earn £30,000 and contribute £2,000 to your pension, you're only taxed on £28,000.
Student Loan Repayments
If you have a student loan, repayments are automatically deducted from your salary once you earn above a certain threshold (varies by plan type: Plan 1, Plan 2, Plan 4, or Postgraduate).
How to Calculate Your Take-Home Pay
Your take-home pay (net salary) is calculated as:
Gross Salary - Income Tax - National Insurance - Pension - Student Loan = Take-Home Pay
Rather than calculating this manually, use our Income Tax Calculator to get an instant, accurate breakdown of your take-home pay.
Key Takeaways
- The first £12,570 you earn is tax-free
- Tax is charged in bands, not as a flat rate
- National Insurance is separate from income tax
- Pension contributions can reduce your tax bill
- High earners (£100k+) lose their Personal Allowance gradually
Want to know your exact take-home pay? Try our Income Tax Calculator for a detailed breakdown including tax, National Insurance, pension, and student loan deductions.