UK finance jargon - in plain English
The income thresholds that decide what rate of tax you pay.
In the UK, income tax is not a flat rate. Your income is split into bands, and each band is taxed at a different rate. For 2026/27 in England, Wales, and Northern Ireland: the first £12,570 is your Personal Allowance and is tax-free; earnings from £12,571 to £50,270 are taxed at 20% (basic rate); from £50,271 to £125,140 at 40% (higher rate); and above £125,140 at 45% (additional rate). Scotland has its own separate bands. The key point is that you only pay each rate on the portion of income that falls within that band, not on everything you earn.
You earn £55,000. You do not pay 40% on the whole amount. You pay nothing on the first £12,570, 20% on the next £37,700 (up to £50,270), and 40% only on the remaining £4,730. Your effective tax rate ends up well below 40%.
Numbers are based on 2026/27 rates for England, Wales, and Northern Ireland. Scotland uses different bands. Rates and thresholds can change each tax year.
Last updated: June 2026. Sources: HMRC / GOV.UK / Student Finance England / FCA where relevant.
People assume that earning over a threshold means all their income is taxed at the higher rate. It is not. Only the portion above the threshold moves into the next band. For income tax alone, a pay rise will not reduce your take-home pay. In practice though, other factors can create unexpected cliffs: crossing certain income thresholds can affect student loan repayments, the High Income Child Benefit Charge, or entitlement to tax-free childcare, which can make a pay rise feel less straightforward than expected.