Tax Rates and Allowances 2027: What You Need to Know

For a UK taxpayer, staying up to date with the latest tax rates and allowances is essential. This article contains the rates and allowances for the tax year 2026/27, which runs from 6th April 2026 to 5th April 2027. This means there have been changes to the tax rates and allowances that one must be aware of.

Overview of Tax Rates and Bands

Several key factors should be considered when determining tax rates and allowances for 2026/27. The following subsections provide an overview of the key details.

Income Tax Rates and Bands

The income tax rates and bands for the 2026/27 tax year are as follows:

Band	Taxable Income	Income Tax Rate
Personal Allowance	Up to £12,570	0%
Basic Rate	£12,571 to £50,270	20%
Higher Rate	£50,271 to £125,140	40%
Additional Rate	Over £125,140	45%

Note: Your Personal Allowance is not simply “lost” at a high income level; it is tapered. For every £2 that your ‘adjusted net income’ (total income before personal allowances and after certain reliefs) exceeds £100,000, your Personal Allowance is reduced by £1. This means that once your total income reaches £125,140, your Personal Allowance falls to nil.

Adjusted net income = total income – gross personal pension contribution – gift aid donation

National Insurance Contributions

National Insurance contributions are pivotal in tax considerations. This comprehensive guide on Self-employed National Insurance can be invaluable for detailed insights into taxpayer obligations, especially when self-employed.

The rates for the 2026/27 tax year are as follows:

Earnings	Class 1 National Insurance Rate
Up to £242 per week	0%
£242.01 to £967 per week	8%
Over £967 per week	2%

Class 2 National Insurance contributions are payable by self-employed individuals with a small profit threshold of £7,105 per year. Class 4 National Insurance contributions are payable on profits between £12,570 and £50,270 per year at 6% and 2% for earnings above £50,270.

Dividend Taxation

From 6th April 2026 to 5th April 2027, the dividend allowance is set to be £500. Further dividend tax rates and allowances for the 2026/27 tax year are as follows:

Tax Band	Tax Rate on Dividends over the Allowance
Basic Rate	10.75%
Higher Rate	35.75%
Additional Rate	39.35%

Note: While the Welsh Government and Northern Ireland Assembly have the power to set their own rates, they have currently opted to remain aligned with the UK-wide structure for this tax year.

Capital Gains Tax (CGT) for 2026/27:

• Annual Exempt Amount (AEA): £3,000 for individuals, £1,500 for most trusts.

Asset Type	Taxpayer Category	CGT Rate
Individuals (excluding carried interest)	Basic Rate	18%
	Higher Rate	24%
Carried interest for an individual (although treated as taxable income)	34.1%
Residential Property	Basic Rate	18%
	Higher/Additional Rate	24%
Other Chargeable Assets	Basic Rate	18%
	Higher/Additional Rate	24%
Trustees & Personal Reps	24%
Business Asset Disposal & Investors’ Relief	18%
Personal Representatives of someone who has died (excluding carried interest)	24%
Personal representatives of someone who has died for a carried interest	All Taxpayers	32%

Corporation Tax

As business owners, you must know the corporation tax rates and allowances for the 2026/27 tax year. The main corporation tax rate is 25% and an effective rate of 26.5%, while the small profits rate is 19%.

Profit Range	Tax Rate	Effective Rate	Notes
£0 – £50,000	19%	19%	Small Profits Rate (SPR)
£50,001 – £250,000	25% (Main Rate)	26.5%	Marginal Relief applies
Over £250,000	25%	25%	Main Rate

Ring Fence Companies

Companies involved in oil extraction or holding rights in the UK or the UK Continental Shelf are subject to a special corporation tax regime called Ring Fence Corporation Tax (RFCT). The tax rates are as follows:

Profit Range	Tax Rate	Effective Rate	Notes
£0 – £50,000	19%	19%	Small Profits Rate
£50,001 – £250,000	30%	Between 19% and 30%	Marginal Relief applies
Over £250,000	30%	30%	Main Rate

In addition to these rates, ring fence profits are subject to a 10% Supplementary Charge, which increases the effective tax rate on profits from oil extraction activities.

Tax Allowances and Reliefs

As a taxpayer, it is essential to understand the various tax allowances and reliefs available. These can help to reduce tax bills and increase your take-home pay. In this section, we will discuss the different types of tax allowances and reliefs available for the 2026/27 tax year.

Personal Allowances

The personal allowance is the income you can earn before paying income tax. For the tax year 2026/27, the personal allowance is £12,570, the same as in the previous tax year. However, if you earn over £100,000, the allowance will be reduced by £1 for every £2 earned above that threshold, phasing out entirely when the income reaches £125,140.

Savings Allowances

Individuals may be eligible for a tax-free Personal Savings Allowance on the interest they earn. For the 2026/27 tax year, this allowance is £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. Additional rate taxpayers do not receive a savings allowance.

For a basic rate taxpayer, they can earn up to £1,000 in savings interest tax-free. In the case of higher-rate taxpayers, they can earn up to £500 in savings interest tax-free. Additional rate taxpayers do not receive a personal savings allowance.

In addition to the personal savings allowance, there is a starting rate for savings. This allows people with low non-savings income (less than £5,000) to earn up to £5,000 in savings interest tax-free.

Important Changes Coming April 2027: From 6 April 2027, the personal savings allowance will be removed entirely (dropping to £0 for both basic and higher rate taxpayers), and savings tax rates will increase by 2 percentage points across all bands (basic rate 20%→22%, higher rate 40%→42%, additional rate 45%→47%). Consider tax-efficient savings vehicles like ISAs before this change takes effect.

Marriage and Civil Partnerships

You may be eligible for a tax break if you are married or in a civil partnership. The Marriage Allowance allows one partner to transfer £1,260 (10% of the standard Personal Allowance) to their spouse or civil partner, which can reduce their tax bill by a fixed amount of £252 per tax year.

To be eligible, the following conditions must be met:

• The Transferor: One partner must have an annual income below the Personal Allowance (usually £12,570 or less).
• The Recipient: The other partner must be a basic-rate taxpayer (typically earning between £12,571 and £50,270).
• The Benefit: This transfer creates a fixed tax saving of £252. If the recipient is a higher-rate or additional-rate taxpayer, the couple is not eligible for this allowance.

In addition to the marriage allowance, there is the married couple’s allowance. The allowance can reduce the tax bill by up to around £1,092 for the 2026/27 tax year, and at least one partner must pay income tax at the basic or higher rate to claim it.

Quick Tip: You can backdate your claim for up to four previous tax years if you met the criteria during that time, potentially resulting in a significant refund.

Miscellaneous Allowances

Several other tax allowances and reliefs are also available, including the blind person’s allowance, which is worth £3,250 for the 2026/27 tax year. This is available to those who are registered blind or severely sight-impaired.

When having a self-employed income, you may be eligible for the trading or property allowance.

The trading allowance allows you to earn up to £1,000 tax-free from self-employment, while the property allowance can be up to £1,000 tax-free from rental income. However, if a trading allowance is being claimed, then you won’t be able to claim any expenses against the rental property or self-employment income.

Finally, rent-a-room relief is available to those who rent out a room in their home. The relief allows one to claim up to £7,500 tax-free from renting a room. If you have a joint owner, this reduces to £3,750. The limit applies even if you let the property for less than 12 months.

Important Update – Property Income Tax Changes (Coming 6 April 2027):

From the 2027/28 tax year onwards, significant changes will affect how property income is taxed. These changes include:

1. Separate Property Income Tax Rates: Property income will have its own separate tax rates, distinct from employment or trading income. This means property income will be taxed using the following rates:
   • Basic rate: 22% (up from 20%)
   • Higher rate: 42% (up from 40%)
   • Additional rate: 47% (up from 45%)

1. Tax Code Changes: From April 2027, the Personal Allowance and general reliefs will be allocated to non-savings income (which includes employment, pensions, and trading income) as a priority. This allowance is then applied to savings income and finally to dividend income.
2. While this change does not affect how tax codes function for PAYE income, the new hierarchy of relief application may alter the final tax liability for individuals with multiple income streams, such as those with both trading and property income.
3. Finance Cost Relief: Relief for finance costs (such as interest on buy-to-let mortgages) will be provided at the separate property basic rate of 22%, rather than at your marginal rate. This is a significant change for landlords with higher incomes.

What This Means for Landlords

When renting out property, you should be aware that from April 2027, the rental income will be taxed at higher rates than standard employment income. For example, a basic rate taxpayer with rental income will face a 22% tax rate instead of 20%. For higher-rate taxpayers, the rate increases to 42% instead of 40%. It’s advisable to review the property investment strategy and consider tax-efficient planning before these changes take effect.

Pensions and Retirement

Regarding retirement savings, many opt for private pensions. Understanding how to make pension contributions through a limited company can offer tax-efficient ways to plan for retirement.

State Pension Contributions

The state pension is a regular payment from the government that people can receive when they reach state pension age. The amount depends on your National Insurance contributions. You can check National Insurance records and get an estimate of the state pension on the government’s website.

Private Pensions

Private pensions are another option for saving for retirement. These are pensions that individuals can arrange themselves, rather than through employers. There are two main types of private pension: defined benefit and defined contribution.

With defined benefit pensions, the employer guarantees a certain income level when an employee retires, based on salary and years of service. With defined contribution pensions, you build up a pot of money over time, which you can then use to buy an annuity or draw down income in retirement.

Pension Taxation

Regarding pensions, there are a few tax considerations to keep in mind. Firstly, tax relief is usually applied automatically to your contributions, acting as a government top-up to your pot. While basic rate relief is added directly by your pension provider, higher-rate taxpayers typically claim their additional relief through Self Assessment.

Secondly, there are limits on how much you can save into a pension each year without incurring tax charges. These are known as pension allowances. The standard Annual Allowance is currently £60,000. However, allowance may be reduced if you have a high income, specifically if “threshold income” exceeds £200,000 and “adjusted income” exceeds £260,000, leading to a tapered annual allowance.

Finally, when you come to take your pension, you may have to pay income tax on the money received. This is because the pension is treated as income for tax purposes. The amount of tax you pay will depend on your total income in retirement.

Taxation in Different Regions of the UK

Regarding taxation, different regions have their own tax rates and allowances. Here’s a breakdown of the tax rates and allowances in each area.

England, Wales, and Northern Ireland

For the 2026/27 tax year, England, Wales, and Northern Ireland share the same Income Tax rates and thresholds. The standard Personal Allowance is £12,570.

Band	Taxable Income	Tax Rate
Personal Allowance	£0 – £12,570	0%
Basic Rate	£12,571 – £50,270	20%
Higher Rate	£50,271 – £125,140	40%
Additional Rate	£125,141 – Above	45%

Note: While the Welsh Government and Northern Ireland Assembly have the power to set their own rates, they have currently opted to remain aligned with the UK-wide structure for this tax year.

Scotland

Scotland’s Income Tax system uses a different multi-band structure. While the Personal Allowance remains £12,570, the rates and thresholds are as follows:

Band	Taxable Income	Tax Rate
Personal Allowance	£0 – £12,570	0%
Starter Rate	£12,571 – £16,537	19%
Basic Rate	£16,538 – £29,526	20%
Intermediate Rate	£29,537 – £43,662	21%
Higher Rate	£43,663 – £75,100	42%
Advance Rate	£75,101 – £125,140	45%
Top Rate	Above £125,140	48%*

Tax Considerations for Various Groups

Here are a few key tax considerations for each group:

Self-Employed Individuals

• Will need to pay Class 2 and Class 4 National Insurance contributions.
• May be eligible for certain tax reliefs, such as the annual investment allowance.
• Can use an income tax calculator to estimate your tax bill.

Share Fishermen and Volunteer Development Workers

• Share fishermen will be taxed on their share of the profits of the fishing boat.
• Volunteer development workers may be eligible for certain tax benefits.

Non-Residents

• You will only be taxed on income that is earned in the UK.
• We cannot advise on tax in any other jurisdiction, so non-UK residents should also take advice in the country in which they live on how any UK income might be treated there.

Tax Codes and Compliance

It is crucial to understand the tax code to ensure you are paying the correct amount of tax. The employer or pension provider uses the tax code to calculate how much tax to deduct from pay or pension. 

You can find your tax code on your pay slip or pension statement.

Understanding Tax Code

Your tax code determines how much you can earn before paying income tax. For the 2026/27 tax year, the standard personal allowance is £12,570.

Tax codes are adjusted based on individual circumstances. For instance, your code may change if you receive Child Benefit or taxable employer benefits, such as a company car or private medical insurance, to ensure the correct tax is deducted from your pay.

Self-Assessment and Returns

Completing a self-assessment tax return is a crucial annual task for many. For a step-by-step guide on navigating this process, consider this thorough overview on how to complete your self-assessment tax return.

Inheritance Tax and Estate Planning

Inheritance tax is a tax on the estate (the property, money, and possessions) of someone who has died. If you are the personal representative of someone who has passed, you may need to pay inheritance tax on their estate. The amount of inheritance tax due depends on the estate’s value and whether any exemptions or reliefs apply.

The standard nil-rate band for the 2026/27 tax year is £325,000. An additional Residence Nil-Rate Band of up to £175,000 may apply if the deceased leaves their home to direct descendants, potentially increasing the total tax-free allowance to £500,000.

Staying compliant with tax laws and regulations is essential to avoid penalties and fines. 

If you have any questions or concerns about your tax code, self-assessment tax return, or inheritance tax, seek professional advice from our qualified tax advisor.

Closing

Staying informed about the latest tax rates and allowances for the 2026/27 tax year is essential for effective financial planning and ensuring compliance with UK tax laws. Understanding these changes allows us to maximise available reliefs and avoid unexpected liabilities. 

If you have questions or need tailored guidance, consider consulting a qualified tax advisor to help you make the most of your financial decisions.