How UK Income Tax Actually Works in 2026/27

Every UK payslip is really three deductions stacked on top of each other: Income Tax, National Insurance, and — if you have one — a student loan. Each uses different thresholds and rates, which is why the "why did I only get X?" moment is so common.

The Personal Allowance

The first £12,570 you earn each year is tax-free. That's the Personal Allowance. Above £100,000, it tapers away at £1 for every £2 earned, which creates a brutal 60% effective marginal rate between £100k and £125,140.

The three main bands

• Basic rate (20%) — £12,571 to £50,270
• Higher rate (40%) — £50,271 to £125,140
• Additional rate (45%) — above £125,140

Tax is marginal — moving into the higher rate doesn't retax your first £50k. Only the pound above the threshold is taxed at the higher rate.

National Insurance

Employees pay 8% between £12,570 and £50,270, and 2% on earnings above that. NI thresholds are close to Income Tax thresholds but not identical — which is why the true "marginal rate" jumps around at specific salary points.

Student loans

Plans 1, 2, 4 and 5 each have their own threshold and take 9% of everything above it. Plan 5 (post-2023 English undergrads) kicks in at £25,000. Postgraduate loans are 6% above £21,000 and stack on top of any undergrad plan.

Worked examples

• £30,000 — roughly £2,090 income tax, £1,394 NI. Take-home ≈ £26,516.
• £60,000 — you cross into the 40% band. Roughly £11,432 tax and £3,394 NI. Take-home ≈ £45,174.
• £120,000 — you lose most of the Personal Allowance and pay 40% (plus 2% NI) on much of your income. Take-home ≈ £75,000, before pension.

Pension contributions come off before tax is calculated, which is the single cheapest tax break most earners have access to.