If you find taxes difficult to understand, you’re not alone. From Value-Added Tax (VAT) and Excise Duties to Council Tax and Stamp Duty, there are so many different types of taxes, it can be challenging to get your head around them all.

But while some taxes won’t affect you, it’s likely you’ll have to pay Income Tax at some point in your life. This means it’s one of the most important taxes to get to grips with.

Each year the UK government determines what the Income Tax bands and allowances will be for the coming tax year and reveals them in the annual budget announcement in March. But what exactly are Income Tax bands?

In this article, we’ll explain what these are and give the figures for the tax year 2022/23. This will give you an indication of how much Income Tax you might be expected to pay for the current tax year.

In the UK, most people get a Personal Allowance, which means they can receive income up to a certain amount each year, without paying tax on it. Income after this amount falls into different tax bands, depending on how much it is.

In England, Wales and Northern Ireland, the Income Tax Bands are Basic Rate, Higher Rate and Additional Rate, while in Scotland there’s the Starter Rate, Basic Rate, Intermediate Rate, Higher Rate and Top Rate.

Read on to find out more about UK Income Tax rates and bands.

Below are the current Income Tax bands for England, Wales, Northern Ireland and Scotland, but bear in mind that these are just an indication of how much tax you’ll be charged. Not everyone’s tax-free personal allowance will be the same, as it depends on whether you’re entitled to any other allowances (we’ll go into these later), you owe or are owed tax from a previous tax year or you earn more than £100,000 per year. If you earn more than £100,000 per year, your Personal Allowance will be reduced by £1 for every £2 of income, which means your Personal Allowance could be as little as zero.

Income Tax bands for England, Wales and Northern Ireland

Tax bandTaxable incomeTax rate
Personal AllowanceUp to £12,5700%
Basic Rate£12,571 and £50,27020%
Higher Rate£50,271 to £150,00040%
Additional RateMore than £150,00045%

Income Tax bands for Scotland

Tax bandTaxable incomeTax rate
Personal AllowanceUp to £12,5700%
Starter rate £12,571 to £14,73219%
Basic rate£14,733 to £25,68820%
Intermediate rate£25,689 to £43,66221%
Higher rate£43,663 to £150,00041%
Top ratemore than £150,00046% 

As already mentioned, these figures are revealed in the House of Commons as part of the annual Budget announcement, so they can change from year to year. However, in March 2021, the Chancellor of the Exchequer announced that the thresholds would be frozen from the tax years 2022/23 to 2025/26.

HMRC collects income tax on behalf of the government so it can fund public services, like the NHS, education and the welfare system. It also uses the money to invest in public projects, such as housing and roads.

Income Tax isn’t just charged on earnings that come from employment. You’ll also have to pay it if your income comes from other sources, like rent or savings and pensions. However, it isn’t levied on all types of income.

If you receive income from any of the following, you’ll usually be required to pay Income Tax on it:

  • Employment
  • Employment benefits
  • Interest on savings above your Personal Savings Allowance
  • Most pensions including state pensions, personal and company pensions and retirement annuities
  • Renting out properties (unless you’re a live-in landlord and receive less than the Rent a Room Scheme limit
  • Some grants, including the Small Business Grant Fund, the Coronavirus Job Retention Scheme, the Self-Employment Income Support Scheme and the Retail, Hospitality and Leisure Grant Fund
  • Some state benefits
  • The Test and Trace Support Payment, Self-Isolation Support Payment and Self-Isolation Support Scheme
  • Trusts

How is Income Tax paid?

Income Tax is paid differently, depending on whether you are employed or self-employed. 

If you are employed, you will pay it through Pay As You Earn (PAYE). PAYE is a system that deducts Income Tax and National Insurance contributions before your wages or pension payments are made.

If you are self-employed, you will need to pay it through Self-Assessment. Self-employed taxpayers and those with other sources of income must file a self-assessment tax return each year.

What is Capital Gains Tax?

Capital Gains Tax (CGT) is a tax that’s charged on the profit you make from selling something that’s increased in value. However, you will only have to pay CGT if you sell an asset that’s worth more than £6,000 — although, this doesn’t include cars or main homes — and you get an annual exempt amount which allows you to receive some gains tax-free. 

Capital Gains Tax bands for 2022/23

Annual exempt amount£12,300 for individuals
Standard Capital Gains Tax rate18% on residential property, 10% on other assets 
Higher Capital Gains Tax rate28% on residential property, 20% on other assets

Are there any exceptions to paying Income Tax?

In some cases, you may not be required to pay tax on your income. 

For example, you don’t pay Income Tax on things like:

  • Dividends from company shares below your Dividends Allowance (see below for the dividend tax rates for the tax year 2022/23)
  • Income from tax-exempt accounts, such as Individual Savings Accounts (ISAs) and National Savings Certificates
  • National Lottery or premium bond wins 
  • Rent from a lodger in your house that’s below the Rent a Room Scheme limit
  • Some state benefits
  • The first £1,000 of income from property you rent (unless you’re using the Rent a Room Scheme)

Dividend Tax bands for 2022/23

For the tax year 2022/23, the Dividend Allowance is £2,000. The tax you pay on dividends above this allowance depends on your Income Tax band (see the table below for the rates). The exception to this is if your shares are held in a Stocks & Shares ISA, as dividends in this type of savings account are always tax-free.

Income Tax bandTax rate on dividends above the allowance
Basic rate8.75%
Higher rate33.75%
Additional rate39.35%

You may also be able to claim Income Tax relief if: 

  • You’re self-employed, as you can pay less tax to take into account the money you’ve spent on the costs of running your business (provided you’re not using your £1,000 tax-free trading allowance)
  • You work on sea vessels outside of the UK for a certain number of months per year 
  • You make charity donations through Gift Aid or Payroll Giving 
  • You make maintenance payments to an ex-spouse or civil partner

In addition to the above exemptions, you may be entitled to some other allowances that could reduce the amount of income tax you have to pay:

Blind Person’s Allowance

On top of their Personal Allowance, blind people can get an extra allowance of £2,600, for the tax year 2022/23.

Marriage Allowance

If you’re married or in a civil partnership and you and your partner were both born after 6th April 1935, you may also be able to claim Marriage Tax Allowance.

If one partner earns less than £12,570 and the other earns between £12,571 and £50,270 (or £43,662 in Scotland), the lower earner can transfer as much as £1,260 of their Personal Allowance to reduce their partner’s tax bill.

Personal Savings Allowance

Depending on your Income Tax band, you may be able to earn tax-free interest on your savings too. Basic Rate taxpayers can earn up to £1,000 in savings interest per year without paying tax and Higher Rate taxpayers can earn up to £500 in savings interest per year without paying tax. Additional Rate taxpayers. however, don’t qualify for this allowance. These bands are used for the Personal Savings Allowance for Scottish residents too.

The Personal Savings Allowance applies to any interest earned from building society and bank accounts, credit union accounts, savings accounts and government and corporate bonds, as well as interest earned on other currencies if they’re held in UK-based savings accounts. Dividend income from shares or funds isn’t included in the allowance.

Trading Allowance

If you’re self-employed, you don’t have to pay tax on the first £1,000 you make, as this is your trading allowance.

This is in addition to your Personal Allowance and it applies to casual services like babysitting and gardening, as well as businesses.

It’s worth noting that if you earn less than £1,000 per year, you can only claim the same amount as your gross income and you can’t claim your expenses.

Income Tax is one of the most important taxes to get to grips with, as it’s likely you’ll have to pay it at some point in your life.

Each year the UK government determines what the Income Tax bands and allowances will be for the coming tax year and reveals them in the annual budget announcement in March. 

In the UK, most people get a Personal Allowance, which means they can receive income up to a certain amount each year, without paying tax on it. Not everyone’s tax-free allowance will be the same, as it depends on whether you’re entitled to any other allowances, you owe or are owed tax from a previous tax year or you earn more than £100,000 per year. You’ll then be taxed on income above the Personal Allowance, which falls into different tax bands, depending on how much it is.

In England, Wales and Northern Ireland, the Income Tax Bands are Basic Rate, Higher Rate and Additional Rate. In Scotland, the Income Tax bands are Starter Rate, Basic Rate, Intermediate Rate, Higher Rate and Top Rate.

in March 2021, the Chancellor of the Exchequer announced that the thresholds for the tax year 2022/23 would be frozen until 2025/26.

Income Tax is used to fund public services and is charged on income that comes from things like employment, pensions, renting out properties and some state benefits. It is paid through either PAYE or Self-Assessment.

If you sell an asset that’s worth more than £6,000 (excluding cars or main homes) you may have to pay Capital Gains Tax (CGT) on the profit you make. You do, however, get an annual exempt amount which allows you to receive some gains tax-free.

Income Tax is not charged on things like dividends below your Dividends Allowance, National Lottery winnings and the first £1,000 of income from property you rent.

You may also be able to claim Income Tax relief if you’re self-employed — as you can pay less tax to take into account the money you’ve spent on the costs of running your business — you work on sea vessels outside of the UK for a certain number of months per year, you make charity donations through Gift Aid or Payroll Giving or you make maintenance payments to an ex-spouse or civil partner.

On top of your Personal Allowance, you may also be entitled to:

  • Blind Person’s Allowance
  • Marriage Allowance
  • Personal Savings Allowance
  • Trading Allowance