What is Income Tax? UK Definition 2026/27
Quick Answer
Tax paid on your earnings, pensions, and other income at 20%, 40%, or 45%.
Definition of Income Tax
Income tax is the main direct tax in the UK, charged on earnings from employment, self-employment, pensions, rental income, and savings interest. The Personal Allowance (£12,570) is tax-free, then rates of 20%, 40%, and 45% apply to different bands. Scotland has different rates and bands.
Income Tax — Key Facts for 2026/27
| Personal Allowance | £12,570 |
| Basic rate | 20% |
| Higher rate | 40% |
| Additional rate | 45% |
How Income Tax Works — Example
- 1Personal Allowance: £12,570 (tax-free)
- 2Basic rate: £37,700 × 20% = £7,540
- 3Higher rate: £9,730 × 40% = £3,892
- 4Total income tax: £11,432
- 5Effective rate: 19.1%
How Income Tax Affects Your Tax
Income tax is the largest tax for most individuals. Understanding your marginal rate helps with financial planning - pension contributions, salary sacrifice, and timing of income can significantly reduce your tax bill.
Official HMRC Guidance on Income Tax
For official guidance, refer to HMRC's documentation. Tax rules can change, so always verify current rates and thresholds on gov.uk.
HMRC: Income TaxFrequently Asked Questions about Income Tax
Related Tax Terms
Personal Allowance
The amount you can earn tax-free each year - £12,570 for 2026/27.
PAYE
Pay As You Earn - the system for deducting income tax and NI from wages.
Self Assessment
The system for reporting income and calculating tax owed to HMRC.
Tax Code
A code telling your employer how much tax-free pay you get.
Accuracy Note
This information is for guidance only and is based on 2026/27 tax year rates. Tax rules are complex and your circumstances may differ. For personal advice, consult a qualified accountant or tax adviser.