Every April, millions of people across the UK see their payslips change — sometimes by a little, sometimes by quite a lot. The 2025/26 tax year is no different. Between frozen allowances, employer National Insurance hikes, and new rules coming down the line for dividends and savings, there is plenty to get your head around.
But here is the thing: most of these changes are written up in complicated government documents full of jargon. So we have done the hard work for you. In this guide, we will walk through exactly what has changed, what is staying the same, and — most importantly — what it all means for the money that actually lands in your bank account each month.
The Personal Allowance Is Still Frozen — and That Matters More Than You Think
Let us start with the big one. The personal allowance — that is the amount you can earn before you start paying any income tax at all — is staying at £12,570. It has been stuck there since April 2021, and the government has now confirmed it will not budge until at least April 2028. Some reports suggest it could stay frozen all the way through to 2031.
Now, you might think "Well, it hasn't gone down, so that's fine." But here is the catch. Wages have been going up. Inflation has pushed prices higher, and most employers have had to raise salaries to keep up. So even though the allowance has not changed, more of your income is now being taxed than it was a few years ago.
This is what people call a "stealth tax." The government does not need to raise the actual tax rate. They just let inflation do the work. If you earned £25,000 in 2021, you paid tax on £12,430 of that. If you earn £28,000 now, you are paying tax on £15,430 — nearly three thousand pounds more — even though the tax rate itself has not changed.
For most working people, this means a slightly smaller share of each pay rise actually reaches your pocket. It is worth keeping in mind when you are negotiating a salary increase or thinking about whether a new job offer is really better than your current one.
Income Tax Rates: No Change, But the Thresholds Tell the Real Story
The basic rate of income tax is still 20%, the higher rate is still 40%, and the additional rate is still 45%. None of that has changed for 2025/26.
But here is where the thresholds matter. The higher rate kicks in at £50,270. Again, that number has been frozen. So if you got a pay rise that pushed you from £49,000 to £51,000, you are now paying 40% on everything above £50,270 — even though in real terms, adjusted for inflation, you are not actually much better off than you were before.
This is hitting a growing number of people. Back in 2021, around 4.2 million people paid the higher rate. By 2025/26, that figure is expected to be well over 5 million. More ordinary workers — teachers, nurses, experienced tradespeople — are being dragged into the higher rate band without feeling any richer.
National Insurance: You Pay Less, Your Boss Pays More
Here is a bit of good news, at least on the surface. The employee rate of National Insurance contributions sits at 8% for 2025/26. If you think that sounds low, you are right — it used to be 12% not that long ago. The previous government cut it to 10% in late 2023 and then again to 8% in the 2024 Spring Budget.
So workers are paying less NI than they were a couple of years ago. That is a genuine boost to take-home pay. You can see exactly how much NI you pay using our National Insurance calculator.
But there is a flip side. From April 2025, employers are paying 15% in National Insurance on their employees' earnings — up from 13.8%. And the threshold at which employers start paying has dropped from £175 per week to just £96 per week. That means businesses are paying NI on a much bigger chunk of each worker's salary.
Why does that matter to you? Because many businesses pass those costs on. Some might slow down hiring. Others might hold back on pay rises. A few might reduce other benefits. If you run your own limited company, you will feel this directly when paying yourself a salary.
It is one of those changes that does not show up on your payslip but definitely affects the bigger picture of your career and your employer's ability to reward you.
Dividend Tax Is Going Up in April 2026
If you are a company director who takes dividends, or you have investments that pay out dividends, listen up. From April 2026, the tax rates on dividend income are going up by 2 percentage points.
That means:
- The basic rate on dividends goes from 8.75% to 10.75%
- The higher rate goes from 33.75% to 35.75%
- The additional rate stays at 39.35%
For someone taking £30,000 in dividends at the basic rate, that is an extra £600 a year in tax. Not huge on its own, but combined with the dividend allowance being cut to just £500 (it was £2,000 only a couple of years ago), it really adds up.
If you are self-employed and operate through a limited company, this is a big deal. The classic strategy of paying yourself a small salary and topping up with dividends is becoming less tax-efficient with every passing year. It might be worth speaking to an accountant about whether your current setup still makes sense.
Savings and Property Income: Changes Coming in 2027
Looking a bit further ahead, from April 2027 the government is introducing higher tax rates on savings interest and property income. The basic rate will go up to 22%, the higher rate to 42%, and the additional rate to 47%. That is a 2 percentage point increase across the board.
If you are a landlord or you have a decent amount of savings earning interest, this will eat into your returns. With interest rates still relatively high compared to a few years ago, more people are earning above their personal savings allowance — so this change could catch more people than you might expect.
Inheritance Tax: Thresholds Frozen Until 2031
The inheritance tax nil-rate band is frozen at £325,000, and the residence nil-rate band stays at £175,000. These thresholds have not moved for years, and they will not move until at least 2031.
With property prices continuing to rise in many parts of the country, more families are being caught by inheritance tax when a loved one passes away. A house that was worth £250,000 ten years ago might well be worth over £400,000 now. If the total estate — including the house, savings, pensions, and other assets — exceeds the combined threshold, the family will face a 40% tax bill on the excess.
It is worth thinking about estate planning sooner rather than later, especially if you own property in an area where prices have risen sharply.
What Can You Actually Do About All This?
Nobody can avoid tax completely, and you should not try to. But there are perfectly legal, sensible steps you can take to make sure you are not paying more than you need to.
Use your ISA allowance. You can put up to £20,000 a year into an ISA, and any interest, dividends, or growth inside it is completely tax-free. If you are not using your full allowance, you are leaving money on the table.
Check your tax code. Seriously — mistakes happen more often than you would think. If HMRC has you on the wrong tax code, you could be overpaying every single month without realising. You can check your tax code on your payslip or through your personal tax account on the HMRC website. Our tax code calculator can help you understand what your code means and whether it looks right.
Make pension contributions. Money you put into a pension reduces your taxable income. If you are close to the higher rate threshold, extra pension contributions could keep you in the basic rate band and save you a fair chunk of tax. Use our pension calculator to see how increasing your contributions affects your take-home pay.
Use our calculators. This is exactly why we built YourIncomeCalculator. Pop your salary into our free salary calculator and see exactly what your take-home pay looks like under the current 2025/26 rules. You can adjust for pension contributions, student loans, overtime, and more. Got a bonus coming? Our bonus tax calculator shows you exactly how much of it you will take home. It takes about thirty seconds and could save you a lot of guesswork.
The Bottom Line
The 2025/26 tax year is not bringing any dramatic headline-grabbing changes. There is no big rate increase, no sudden new tax. But the steady freeze on thresholds and allowances means that, quietly, millions of people are paying more tax each year — even as their wages barely keep pace with the cost of living.
Understanding how these changes affect you personally is the first step to making smarter decisions about your money. Whether it is checking your tax code, using your ISA, topping up your pension, or simply knowing what your actual take-home pay should be — a little bit of knowledge goes a long way.
Have a look at your numbers using our free salary calculator and see exactly where you stand for 2025/26.