Income Tax Rates and Allowances for 2026/27

The UK Government has confirmed that Income Tax rates and allowances for the 2026/27 tax year will remain largely unchanged from the previous year. While there are no major increases, understanding how these thresholds apply is essential for effective financial planning.

This update is particularly relevant for individuals, business owners, landlords and those receiving dividend or savings income.

Personal Allowance Remains Frozen

The Personal Allowance, which is the amount you can earn before paying Income Tax, will remain at £12,570.

However, for individuals earning over £100,000, this allowance is gradually reduced. For every £2 earned above this threshold, £1 of the allowance is lost. This means the Personal Allowance is completely removed once income reaches £125,140.

Income Tax Rates for 2026/27

The structure of Income Tax bands remains unchanged:

• 20% (Basic Rate): Applies to income between £12,571 and £50,270
• 40% (Higher Rate): Applies to income between £50,271 and £125,140
• 45% (Additional Rate): Applies to income above £125,140

These thresholds continue to impact how much tax individuals pay on earnings, pensions and other income.

Savings Income and Allowances

The Personal Savings Allowance also remains unchanged:

• £1,000 for basic-rate taxpayers
• £500 for higher-rate taxpayers
• £0 for additional-rate taxpayers

This means many individuals can still earn interest on savings without paying tax, depending on their income level.

In addition, a starting rate for savings of up to £5,000 may apply for those with lower incomes (below £17,570). This allowance is reduced as income increases.

Dividend Income

Dividend allowances remain limited:

• The first £500 of dividend income is tax-free
• Beyond this, dividend income is taxed at:
  • 10.75% (basic rate)
  • 35.75% (higher rate)
  • 39.35% (additional rate)

This is particularly important for business owners and shareholders who receive income through dividends.

Additional Tax-Free Allowances

Certain smaller income streams continue to benefit from tax-free allowances:

• £1,000 trading allowance for self-employment income
• £1,000 property allowance for rental income

These allowances can be useful for individuals with side income or occasional earnings.

Why This Matters

Although rates remain unchanged, the continued freeze on allowances means that more people may find themselves paying higher levels of tax over time, particularly as incomes rise.

Understanding how these thresholds apply can help with:

• Tax planning
• Managing savings and investments
• Structuring business or property income efficiently

Q&A: Income Tax 2026/27

Have Income Tax rates increased this year?

No — rates remain the same, but frozen thresholds may still increase the tax you pay over time.

Will I pay more tax if my income increases?

Yes. As your income rises, you may move into a higher tax band or lose part of your Personal Allowance.

Do I pay tax on savings interest?

Not always. Many people can earn interest within their Personal Savings Allowance without paying tax.

How are dividends taxed?

Dividend income above £500 is taxed at rates depending on your Income Tax band.

Can I earn some income tax-free?

Yes. The Personal Allowance, savings allowances, dividend allowance and trading/property allowances may apply.

Contact Us

If you would like guidance on tax planning, estate planning, or managing your assets, obtaining professional advice can help you make informed decisions.

Willett & Co Solicitors provide clear, practical advice to individuals and businesses in Bury St Edmunds and across Suffolk.

📞 01284 701323
✉ law@willettsolicitors.com
📍 18 Angel Hill, Bury St Edmunds, Suffolk, IP33 1XQ