UK income tax is calculated using a progressive band system - you only pay the higher rate on the portion of income that falls within that band, not on your total income.
UK income tax bands (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% |
Note: The personal allowance is reduced by £1 for every £2 of income over £100,000, and is zero above £125,140.
How progressive taxation works
Example for £60,000 income:
| Band | Amount in band | Tax |
|---|---|---|
| 0% (personal allowance) | £12,570 | £0 |
| 20% (basic rate) | £37,700 | £7,540 |
| 40% (higher rate) | £9,730 | £3,892 |
| Total income tax | £11,432 |
Effective tax rate = £11,432 ÷ £60,000 = 19.1% (not 40%)
Capital Gains Tax (CGT)
For investments and property (not main residence), CGT applies on gains above the annual exemption (£3,000 in 2024/25):
- Basic rate taxpayers: 10% (18% for residential property)
- Higher/additional rate taxpayers: 20% (24% for residential property)