Income tax

How much does it raise?

It raised more than the year before, but the other taxes grew faster, so its share of the total fell.

How does it work?

Income tax works in bands, and this is the single most misunderstood thing about it. Moving into a higher band does not mean your whole income is taxed at the higher rate. Only the part of your income inside that band is.

Everyone starts with a Personal Allowance, which is taxed at nothing. Income above it is taxed at the basic rate, then the higher rate, then the additional rate as it passes each threshold.

There is one genuine cliff. Once income passes £100,000 the Personal Allowance is withdrawn by £1 for every £2 above it, so income between £100,000 and £125,140 is effectively taxed at 60%: the 40% band rate plus the 40% charged on the allowance you are losing. It is the highest marginal rate in the system, and it sits in the middle of the income scale rather than at the top.

The bands for 2026-27, outside Scotland:

The Personal Allowance falls by £1 for every £2 of income over £100,000, and is gone at £125,140.

Rates: GOV.UK, Income Tax rates and Personal Allowances. Checked by hand 22 September 2026.

Employees pay through PAYE, deducted before the money reaches them. The self-employed and those with other income pay through Self Assessment, after the fact. That timing difference is why the same tax feels very different depending on how you are paid.

Someone earning £35,000

That is 12.8% of the salary, not 20%. The headline rate is the rate on the last pound, never on the whole.

Work out your take-home pay after income tax and National Insurance

How has it changed?

How it got here, and why each change was made:

• 1799William Pitt the Younger introduces income tax to pay for the war against France. It is explicitly temporary, and is repealed in 1802.
• 1803Reintroduced when war resumes, and repealed again in 1816 to public celebration. Parliament orders the records burned.
• 1842Peel brings it back, again as a temporary measure to cover a deficit, and it has been renewed every year since. It is still formally annual: the Finance Act has to re-impose it each year.
• 1944PAYE begins, so tax is deducted before wages are paid rather than demanded afterwards. It made mass income taxation administratively possible.
• 1979The top rate is cut from 83% to 60% and the basic rate from 33% to 30%, paid for partly by nearly doubling VAT.
• 1988The top rate is cut to 40% and the many higher bands collapsed into one.
• 2010A 50% additional rate is introduced above £150,000, and the Personal Allowance begins to be withdrawn above £100,000, creating the 60% band.
• 2013The additional rate is cut to 45%.
• 2017Scotland begins setting its own rates and bands on earned income.
• 2021The Personal Allowance and higher-rate threshold are frozen. The freeze has since been extended and now runs to April 2031, pulling millions more people into tax and into the higher rate without any rate changing.

Where does the money go?

Nowhere in particular. Income tax is not earmarked. It goes into the Consolidated Fund with almost every other tax and is spent on whatever the government of the day decides. Anyone who tells you a particular tax "pays for" a particular service is describing an illustration, not a rule.

Because it is not earmarked, the only honest way to show what it pays for is by proportion. If income tax receipts of £326.9bn were spent in the same proportions as all public spending in 2025-26, they would break down like this. It is an illustration of scale, not a statement about where those particular pounds went.

See for every £100 of tax for the full picture.

Is it different where I live?

Rates: GOV.UK, Income Tax in Scotland. Checked by hand 22 September 2026.

Scotland

Scotland sets its own rates and bands on earned income, and has six rates rather than three. Scottish taxpayers earning under about £30,000 pay slightly less than they would elsewhere in the UK; above that they pay more, and the gap widens with income. Savings and dividend income is still taxed at the rest-of-UK rates, so a Scottish taxpayer can face two different regimes in one tax return.

Wales

Wales has the power to vary income tax rates by up to 10p in each band but has not used it. Welsh rates have matched England and Northern Ireland since the power was devolved in 2019.

Does it change what people do?

The 50p rate introduced in 2010 and cut in 2013 is the most studied UK case. HMRC found a large drop in declared income at the top when the rate rose, but most of it was people bringing income forward to beat the change rather than earning less. How much revenue the rate raised over the long run remains genuinely disputed, and the honest answer is that the estimate depends heavily on an assumption that cannot be measured directly.

When a tax rise stops raising money looks at the cases where the effect has been large enough to move the revenue.

How does that compare with other countries?

In 2024 the UK raised 10.8% of GDP this way: fifth of the 12 countries compared here.

The UK’s top rate is close to the OECD average, but it starts at a lower multiple of average earnings than in most comparable countries, so more people reach it. The UK also relies more on income tax and less on social security contributions than most of Europe.

What are the arguments?

Both columns are set out as their strongest case, not as a preferred answer and a strawman. See how this site handles contested questions.