London Daily

Focus on the big picture.
Friday, Aug 08, 2025

Income tax: How will thresholds change and what will I pay?

Income tax: How will thresholds change and what will I pay?

The government has announced changes to income tax rules, which will mean millions of people pay more.

Income tax is the single biggest source of funding for the government.


What changes have been announced?


Chancellor Jeremy Hunt will freeze the income tax personal allowance at £12,570 until April 2028.

Anyone who earns more than this will pay more tax.

He is also freezing the threshold at which people start paying higher rate tax for the same period. They were already frozen until 2026.

Freezing the thresholds means that tax bands stay the same, even as people's pay goes up.

As wages rise, people pay tax on a larger proportion of their earnings, and more people move into higher tax brackets. This is sometimes called fiscal drag.


The Office of Budget Responsibility - which independently assesses the government's economic plans - estimates that freezing thresholds until 2028 will create an additional 3.2 million new taxpayers, and will mean 2.6 million more people pay higher rate tax.

Mr Hunt has also announced that the threshold when the highest earners start paying the top rate of tax will fall from £150,000 to £125,140 from April 2023.


What income do you pay tax on?


You pay income tax to the government on earnings from employment and profits from self-employment.

Income tax is also due on some benefits and pensions, the money you get from renting out property, and returns from savings and investments above certain allowances.

These rules apply in England, Wales and Northern Ireland. Scotland has different rules to the rest of the UK.


What is the basic rate of income tax?


You pay the basic rate of income tax on earnings between £12,571 and £50,270 a year.

The basic rate is 20%, so a fifth of the money you earn between those amounts goes to the government.


What is the higher rate of income tax?


The higher rate of income tax is 40%, and is paid on earnings between £50,271 and £150,000 a year. The top of this band will fall to £125,140 from April 2023.

Once you earn over £100,000 a year, you start losing your tax-free personal allowance.

You lose £1 of your personal allowance for every £2 that your income goes above £100,000, which means if you earn more than £125,140 a year, you no longer get any personal allowance.


What is the additional rate of income tax?


Under the current rules, the additional rate of income tax is 45%, and is paid on earnings above £150,000 a year.

This will drop to £125,140 in April 2023.

The government says about 660,000 people pay the additional rate of income tax.


What is National Insurance?


For employees, National Insurance is in many ways similar to income tax - it is also a tax on the money you earn.

It is the second biggest source of money for the government.

It works on some of the same thresholds as income tax.

You do not pay it on the first £12,571 you earn a year. It is then charged at 12% on earnings up to £50,271, and it is 2% on any money made above that.

Mr Hunt confirmed the main National Insurance thresholds will also remain frozen until April 2028.

It is not paid by people over the state pension age even if they are still working.

Employers also have to pay National Insurance.


How is tax different in Scotland?


Some income tax rates are different in Scotland because of powers devolved to the Scottish Parliament.

These are the current income tax rates:

*  No tax paid on £12,570 personal allowance

*  £12,571 to £14,732 starter rate of 19%

*  £14,733 to £25,688 Scottish basic rate of 20%

*  £25,689 to £43,662 intermediate rate of 21%

*  £43,663 to £150,000 higher rate of 41%

*  Above £150,000 top rate of 46%

*  Personal allowance reduced by £1 for every £2 earned above £100,000.

The Scottish government will set out its tax and spending plans for 2023/24 on 15 December.

Newsletter

Related Articles

0:00
0:00
Close
British Labour Government Utilizes Counter-Terrorism Tools for Social Media Monitoring Against Legitimate Critics
OpenAI Launches GPT‑5, Its Most Advanced AI Model Yet
Embarrassment in Britain: Homelessness Minister Evicted Tenants and Forced to Resign
President Trump nominated Stephen Miran, his top economic adviser and a critic of the Federal Reserve, to temporarily fill an open Fed seat
The AI-Powered Education Revolution: Market Potential and Transformative Impact
Chikungunya Virus Outbreak in Southern China: Over 7,000 Hospitalized
French wine makers have seen catastrophic damage to vines that were almost ready to be harvested after the worst fires in more than 70 years burned through the south of the country
US Lawmaker Probes Intel CEO’s China Ties Amid National Security Concerns
Brazilian President Lula says he’ll contact the leaders of BRICS states to propose a unified response to U.S. tariffs
Trump Open to Meeting Putin as Soon as Next Week, with Possible Trilateral Summit Including Zelenskiy
Katy Perry and Justin Trudeau spark dating rumors, joining high stakes world of celeb-politician romances
US envoy Steve Witkoff arrived in Moscow to seek a breakthrough in the Ukraine war ahead of President Trump’s peace deadline
WhatsApp Deletes 6.8 Million Scam Accounts Amid Rising Global Fraud
Nine people have been hospitalized and dozens of salmonella cases have been reported after an outbreak of infections linked to certain brands of pistachios and pistachio-containing products, according to the Public Health Agency of Canada
Karol Nawrocki Inaugurated as Poland’s President, Setting Stage for Clash with Tusk Government
Trump Signals JD Vance as ‘Most Likely’ MAGA Successor for 2028
US Charges Two Chinese Nationals for Illegal Nvidia AI Chip Exports
Texas Residents Face Water Restrictions While AI Data Centers Consume Millions of Gallons
U.S. Tariff Policy Triggers Market Volatility Amid Growing Global Trade Tensions
Tariffs, AI, and the Shifting U.S. Macro Landscape: Navigating a New Economic Regime
Representative Greene Urges H-1B Visa Cuts Amid U.S.-India Trade Tensions
U.S. House Committee Subpoenas Clintons and Senior Officials in Epstein Investigation
Sydney Sweeney Registered as Republican as Controversial American Eagle Ad Sparks Debate
Trump Accuses Major Banks of Politically Motivated Account Denials and Prepares Executive Order
TikTok Removes Huda Kattan Video Over Anti-Israel Conspiracy Claims
Trump Threatens Tariffs on India Over Russian Oil Imports
German Finance Minister Criticizes Trump’s Attacks on Institutions
U.S. Proposes Visa Bond of Up to $15,000 for Some Applicants
U.S. Farmers Increase Lobbying Amid Immigration Crackdown
Elon Musk Receives $23.7 Billion Tesla Stock Award
Texas House Paralyzed After Democrats Walk Out Over Redistricting
Mexican Cartels Complicate Sheinbaum’s U.S. Security Talks
Mark Zuckerberg Declares War on the iPhone
India Rejects U.S. Tariff Threat, Defends Russian Oil Purchases
United States Establishes Strategic Bitcoin Reserve and Digital Asset Stockpile
Thousands of Private ChatGPT Conversations Accidentally Indexed by Google
China Tightens Mineral Controls, Curtailing Critical Inputs for Western Defence Contractors
OpenAI’s Bold Bet: Teaching AI to Think, Not Just Chat
Tesla Seeks Shareholder Approval for $29 Billion Compensation Package for Elon Musk
Nvidia is cutting prices on its RTX 50-series graphics cards after sales slowed and inventories piled up
Ghislaine Maxwell Transferred to Minimum-Security Prison Amid Ongoing DOJ Discussions
U.S. Tariffs Surge to Highest Levels in Nearly a Century Under Second Trump Term
Matt Taibbi Slams Media for Role in Russiagate Narrative
Pilots Call for Mental Health Support Without Stigma
All Five Trapped Miners Found Dead After El Teniente Mine Collapse
Ong Beng Seng Pleads Guilty in Corruption Case Linked to Former Singapore Transport Minister
BP’s Largest Oil and Gas Find in 25 Years Uncovered Offshore Brazil
Italy Fines Shein One Million Euros for Misleading Sustainability Claims
JPMorgan and Coinbase Unveil Partnership to Let Chase Cardholders Buy Crypto Directly
Declassified Annex Links Soros‑Affiliated Officials and Clinton Campaign to ‘Russiagate’ Narrative
×