A Complete Guide to Personal Taxes in the UK

Personal tax in the UK can feel overwhelming, especially when different income types are taxed in different ways. From employment income and rental profits to dividends, savings, and asset sales, it’s easy to lose track of what you owe, when you need to report it, and how much tax you should actually be paying.

This guide explains all the main personal taxes in the UK, including rates, thresholds, and recent changes, in plain English. It’s designed for individuals, business owners, landlords, and high earners who want to understand their tax position clearly and know when professional support can help.

The UK tax year (the starting point)

All personal taxes are based on the UK tax year, which runs from:

6 April to 5 April the following year

For example:

• The 2024/25 tax year runs from 6 April 2024 to 5 April 2025

• The deadline to file and pay tax for that year is 31 January 2026

Understanding this date range is essential, as income and expenses must fall within the correct tax year to be reported accurately.

Income Tax (the main personal tax)

Income Tax applies to most types of personal income, including employment earnings, self-employment profits, rental income, pensions, savings interest, and dividends.

Income Tax bands and rates (2024/25)

Band	Taxable income	Rate
Personal Allowance	Up to £12,570	0%
Basic rate	£12,571 – £50,270	20%
Higher rate	£50,271 – £125,140	40%
Additional rate	Over £125,140	45%

Once income exceeds £100,000, the personal allowance is withdrawn at a rate of £1 for every £2 earned above this level. By £125,140, the personal allowance is fully lost, significantly increasing the effective tax rate.

Income tax thresholds are currently expected to remain frozen into the 2025/26 and 2026/27 tax years, meaning more people will be pushed into higher tax bands as income rises.

National Insurance Contributions (NICs)

National Insurance is paid alongside income tax and helps fund state benefits such as the NHS and the State Pension. The type and amount of NIC you pay depends on how you earn your income.

Employees (Class 1 NICs)

Employees pay Class 1 NICs through PAYE on earnings above the primary threshold, which broadly aligns with the personal allowance.

For the 2024/25 tax year, employee NIC rates are:

• 8% on earnings between £12,570 and £50,270

• 2% on earnings above £50,270

NICs are deducted automatically from your payslip. Although the rate reduces above the upper earnings limit, NICs still represent a significant part of the overall tax burden on employment income.

Self-employed individuals

If you are self-employed, NICs are calculated as part of your Self Assessment tax return.

• Class 2 NICs is a flat weekly charge of £3.45 in 2024/25 (rising to £3.50 in 2025/26). It is payable if your profits exceed the small profits threshold, set at £6,725 for 2024/25 and £6,845 for 2025/26, and it counts towards your State Pension entitlement.

• Class 4 NICs are based on profits:

  • 6% on profits between £12,570 and £50,270

  • 2% on profits above £50,270

Class 2 and Class 4 NICs are paid through your tax return rather than deducted at source.

Company directors and contractors

NIC rules differ for company directors and contractors, which is a common source of confusion.

Company directors usually pay Class 1 NICs, but their NICs are calculated on an annual earnings basis rather than per pay period. This means salary planning is especially important, as poorly structured pay can result in higher NIC charges.

Contractors may also be affected by IR35 rules, which can require income to be taxed as employment income, bringing both income tax and NICs into play. This can significantly reduce take-home pay if not planned correctly.

Because of these differing rules, NIC errors are common for directors and contractors without professional advice, particularly when salaries, dividends, or contract income are involved.

Tax on rental income

If you earn income from renting out property, this must usually be declared through Self Assessment.

Key points:

• Rental income over £1,000 per year must be reported

• Profits are taxed at your marginal income tax rate (20%, 40%, or 45%)

• Mortgage interest is not fully deductible for individuals; instead, relief is given as a basic rate (20%) tax credit

This restriction has increased tax bills for many landlords and makes accurate calculations especially important.

Looking ahead, the government has proposed that from the 2027/28 tax year, rental property income will be taxed using separate rates, similar to savings and dividend income, with higher tax rates applying. While full details are still subject to legislation, these changes are expected to increase the tax burden for some landlords, particularly higher and additional rate taxpayers.

Dividend tax

Dividends are commonly received by company directors and shareholders and are taxed separately from other income.

Dividend tax rates

For the 2024/25 tax year, dividend tax rates are:

• 8.75% for basic rate taxpayers

• 33.75% for higher rate taxpayers

• 39.35% for additional rate taxpayers

From the 2025/26 tax year, the basic and higher dividend tax rates will increase by 2 percentage points, meaning higher tax on dividend income going forward.

Dividend allowance

Everyone also has a dividend allowance, which is the amount of dividend income taxed at 0%. This allowance has been significantly reduced in recent years, and from 2024/25 it stands at £500.

Because the allowance is now much lower than it used to be, dividend income becomes taxable much sooner, particularly for company directors who rely on dividends as part of their overall income.

Dividends still count towards your total taxable income, which means they can push you into higher income tax bands and affect how other income is taxed.

Savings interest tax

Savings interest may also need to be declared on a tax return, particularly if you are a higher earner or have significant savings outside tax-free accounts such as ISAs.

Most individuals benefit from a personal savings allowance (PSA), which allows a certain amount of interest to be earned tax-free each year:

• Basic rate taxpayers can earn up to £1,000 of savings interest tax-free

• Higher rate taxpayers can earn up to £500 tax-free

• Additional rate taxpayers do not receive a personal savings allowance

In addition to this, individuals with low non-savings income may also benefit from the starting rate for savings, which allows up to £5,000 of savings interest to be taxed at 0%. This applies where your non-savings income (such as wages or pensions) is below the personal allowance of £12,570, and the £5,000 band is reduced as non-savings income increases.

Any savings interest earned above these allowances is taxable and may need to be reported through Self Assessment.

As interest rates have risen in recent years, many people now exceed their allowances for the first time, bringing more taxpayers into Self Assessment.

Looking ahead, the government has proposed that from the 2027/28 tax year, savings income will be taxed using separate and higher rates once allowances are exceeded. While allowances are expected to remain, these changes are likely to increase the tax paid on savings interest, particularly for higher and additional rate taxpayers.

Capital Gains Tax (CGT)

Capital Gains Tax applies when you sell or dispose of an asset for more than you paid for it. This can include shares, investment property, second homes, and certain business assets.

CGT rates (current rules)

For most individuals, CGT is now charged at the following rates:

• 18% for basic rate taxpayers

• 24% for higher and additional rate taxpayers

These rates apply to most assets, including residential property, following recent changes that aligned property CGT rates more closely with other asset disposals.

CGT annual allowance

Each individual has an annual CGT allowance of £3,000, which is the amount of gains you can make before CGT becomes payable. This allowance has reduced significantly in recent years, meaning more people now need to report and pay CGT even on relatively modest gains.

Once your total gains exceed the allowance, CGT is charged on the excess at the relevant rate, depending on your overall taxable income.

Reporting CGT on property disposals

If you sell a UK residential property that is subject to CGT, you are usually required to:

• Report the disposal to HMRC within 60 days of completion, and

• Pay any CGT due within the same 60-day period

This is done through HMRC’s UK Property Reporting Service, separate from your annual Self Assessment tax return. The disposal must still be included on your tax return later, even if the tax has already been paid.

Failing to report and pay CGT on time can lead to penalties and interest, which is why property disposals often require prompt professional advice.

Inheritance Tax (IHT)

Inheritance Tax applies to a person’s estate when they die and may be payable if the total value exceeds certain thresholds.

Currently, most estates have a £325,000 tax-free allowance, with an additional allowance available when a main residence is passed to direct descendants. Any value above the available allowances is generally taxed at 40%.

Inheritance Tax is usually payable within six months of the date of death, and interest may be charged if payment is late. While IHT is paid by the estate rather than individuals, it can still have a significant impact on families if planning is not done in advance.

Although IHT is not reported through Self Assessment, understanding how it works is an important part of wider personal tax planning.

When a personal tax return is required

A Self Assessment tax return is commonly required if:

• You are self-employed

• You earn rental income

• You receive dividends or capital gains

• You earn over £150,000 from employment

• HMRC issues a notice requiring a return

Once HMRC requests a return, it must be filed even if no tax is due.

This is becoming even more important as reporting requirements change under Making Tax Digital.

Payments on account

Payments on account apply when:

• Your tax bill is over £1,000, and

• Less than 80% of tax was collected at source

These are advance payments towards the next tax year:

• 50% due 31 January

• 50% due 31 July

They often cause confusion and cash-flow issues if not planned for properly.

How we help with personal tax

We help individuals across the UK understand and manage their personal tax obligations, including employees, business owners, landlords, and high earners.

Our support includes:

• Preparing and filing Self Assessment tax returns

• Reviewing income sources for accuracy

• Claiming all allowable reliefs and deductions

• Explaining payments on account

• Helping reduce tax legally through planning

Most importantly, we explain everything in plain English so you know exactly where you stand.

Final thoughts

Personal tax in the UK involves far more than just income tax. With multiple rates, thresholds, and reporting requirements, it’s easy to make mistakes or pay more tax than necessary.

If you want confidence that your personal tax is accurate, compliant, and tax-efficient, get in touch with us today. We’ll take the stress out of your tax return and help you stay on top of your obligations, now and in the future.