Taxation (UK) · The scope of income tax

Income Tax Rates, Bands and Nil Rate Bands for TX-UK

Updated 11 October 2026 · Fact-checked

Income tax is charged on taxable income in a set order: non-savings income first, then savings, then dividends. Each slice uses the basic (£37,700), higher or additional band. Normal rates are 20%, 40% and 45%; dividend rates are 8.75%, 33.75% and 39.35%. Nil rate bands can reduce tax on savings and dividends.

Understand Income Tax Rates, Bands and Nil Rate Bands

Income tax is not charged at one rate. Your taxable income is split into slices called bands. Each band has its own rate. The more taxable income you have, the more of it falls into the higher bands.

The bands are applied to taxable income, which is income after the personal allowance. For the Finance Act 2025 tables ACCA gives you: the basic rate band covers the first £37,700 of taxable income, the higher rate band covers £37,701 to £125,140, and the additional rate band is everything above £125,140.

There are three types of income, and each has its own rates. Non-savings income (employment, trading, property) is taxed at 20%, 40% and 45%. Savings income (such as bank interest) uses the same normal rates. Dividend income uses lower rates: 8.75%, 33.75% and 39.35%.

Income is taxed in a fixed order: non-savings first, then savings, then dividends. This is why dividends are usually taxed in the highest band you reach. The order matters because it decides which band each type of income sits in.

Three nil rate bands can cut tax to 0% on part of your income. The starting rate for savings is 0% on savings income that falls within the first £5,000 of taxable income. The savings nil rate band is £1,000 for a basic rate taxpayer and £500 for a higher rate taxpayer. Additional rate taxpayers get none (the tables give no figure for them). The dividend nil rate band is £500 for everyone. Income covered by a nil rate band still uses up the basic or higher rate band.

Key rules to remember

Income tax bands: Basic £1 – £37,700; Higher £37,701 – £125,140; Additional over £125,140; Applied to taxable income, which is after the personal allowance.
Normal rates (non-savings and savings): 20% basic; 40% higher; 45% additional; Non-savings income is taxed first, then savings.
Dividend rates: 8.75% basic; 33.75% higher; 39.35% additional; Dividends are taxed last, after non-savings and savings.
Savings nil rate band: Basic rate taxpayer £1,000; higher rate taxpayer £500; Based on the band your taxable income reaches. The tables give no amount for additional rate taxpayers.
Starting rate for savings: 0% on savings income within the first £5,000 of taxable income; Only available if non-savings taxable income is below £5,000. It is reduced by non-savings taxable income.
Dividend nil rate band: £500 for all taxpayers; Taxed at 0%, but the £500 still uses up the band it falls in.
Order of taxation: Non-savings → Savings → Dividends; Fill the bands in this order.

How to solve Income Tax Rates, Bands and Nil Rate Bands questions

Use this method for any income tax liability question involving more than one type of income.

1Compute taxable income for each type: non-savings, savings and dividends. Deduct the personal allowance from non-savings first, then savings, then dividends.
2Extend the basic rate band if the question gives Gift Aid or personal pension contributions. Otherwise use £37,700.
3Tax non-savings income first. Use up to £37,700 at 20%, then the excess at 40% up to £125,140, then 45%.
4Work out the starting rate for savings: £5,000 less non-savings taxable income, if positive, and up to the amount of savings income. Then decide the savings nil rate band: £1,000 if taxable income is within the basic rate band, £500 if higher rate, nil if additional rate.
5Tax savings income in the bands left. Show the starting rate and nil rate band slices at 0%, then the rest at 20% or 40% (45% for additional).
6Tax dividends in the remaining bands. Show the £500 dividend nil rate band at 0%, then the rest at 8.75%, 33.75% or 39.35%.
7Add the three tax figures to get the income tax liability. Then deduct any tax reducers and tax already paid, if asked.

Quickest way: Band-filling layout

When to use it: Use this in Section C computations when you have non-savings, savings and dividend income together.

Draw three lines in your workings: non-savings, savings, dividends. Put the taxable amount next to each.
Write the running total of band used: £37,700 at the basic rate boundary.
Fill the band for each line in order and note where the total crosses £37,700 and £125,140.
Mark the nil rate band slices at 0% so you do not miss them.
Multiply each slice by its rate, round to the nearest £ and add up.

Common mistakes in Income Tax Rates, Bands and Nil Rate Bands

Applying the personal allowance against dividends first.
Students think the allowance should go on the lowest-taxed income.
Fix: Deduct the personal allowance against non-savings income first, then savings, then dividends.
Using normal rates (20%/40%) on dividends.
Students forget dividends have their own rates.
Fix: Use 8.75%, 33.75% and 39.35% for dividends. Check the rate table every time.
Treating the nil rate bands as if they do not use up the basic rate band.
The slice is taxed at 0%, so it seems to disappear.
Fix: The savings and dividend nil rate bands are still part of taxable income and still fill the band they sit in. Count them in your running total.
Giving a £1,000 savings nil rate band to a higher rate taxpayer.
Students use the basic rate figure by default.
Fix: Check the highest band your taxable income reaches. Basic rate: £1,000. Higher rate: £500.
Getting the starting rate for savings wrong.
Students forget it depends on non-savings income.
Fix: The 0% band covers savings within the first £5,000 of taxable income. If non-savings taxable income is £5,000 or more, there is no starting rate.
Forgetting to extend the basic rate band for Gift Aid or pension contributions.
The band looks fixed at £37,700.
Fix: Read the question for gross Gift Aid or personal pension payments. Add them to the basic rate band and the higher rate threshold.

Worked examples

Example 1

Priya has employment income of £30,000 and dividends of £8,000 in the tax year. Assume a personal allowance of £12,570. Compute her income tax liability, ignoring any other reliefs.

Show the solution

Taxable non-savings income = £30,000 − £12,570 = £17,430.
Dividends of £8,000 are taxable in full because the allowance was used up.
Total taxable income = £17,430 + £8,000 = £25,430. This is within the £37,700 basic rate band.
Non-savings tax: £17,430 × 20% = £3,486.
Dividends: first £500 at 0% = £0.
Remaining dividends £7,500 × 8.75% = £656.25, so £656.
Total income tax = £3,486 + £0 + £656 = £4,142.

Answer: Income tax liability = £4,142.

Example 2

Tom has trading profit of £60,000, bank interest of £3,000 and dividends of £10,000. Assume a personal allowance of £12,570 and no other reliefs. Compute his income tax liability.

Show the solution

Taxable non-savings income = £60,000 − £12,570 = £47,430.
Savings £3,000 and dividends £10,000 are taxable in full. Total taxable income = £47,430 + £3,000 + £10,000 = £60,430.
Non-savings: first £37,700 × 20% = £7,540. Excess £47,430 − £37,700 = £9,730 × 40% = £3,892. Total £11,432.
Non-savings has already used the basic rate band and reached the higher rate band, so Tom is a higher rate taxpayer. Starting rate: none, as non-savings taxable income exceeds £5,000. Savings nil rate band = £500.
Savings: £500 × 0% = £0. Remaining £2,500 × 40% = £1,000.
Dividends: £500 × 0% = £0. Remaining £9,500 × 33.75% = £3,206.25, so £3,206.
Total income tax = £11,432 + £1,000 + £3,206 = £15,638.

Answer: Income tax liability = £15,638.

Exam tips

Always memorise the order: non-savings, savings, dividends. Section C marks are given for correct band allocation.
ACCA gives the rates and bands in the exam tax tables, but you still need to know which nil rate band applies. Practise deciding between £1,000 and £500 quickly.
In objective test questions, check for Gift Aid or pension payments in the scenario. They change the band limit and the answer is marked all or nothing.
Show every slice with its rate in Section C, even at 0%. You can earn method marks even if one figure is wrong.
Round workings to the nearest £ as the exam instructions say, and do not round too early.

Practice questions from The scope of income tax

Income Tax Rates, Bands and Nil Rate Bands in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

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Income Tax Rates, Bands and Nil Rate Bands: frequently asked questions

What are the income tax rates in ACCA TX-UK?

Normal rates for non-savings and savings income are 20% basic, 40% higher and 45% additional. Dividend rates are 8.75%, 33.75% and 39.35%. These come with the tax tables in the exam.

What is the difference between the savings nil rate band and the starting rate for savings?

The starting rate is a 0% band for savings income within the first £5,000 of taxable income, so it depends on how much non-savings income you have. The savings nil rate band is £1,000 for basic rate and £500 for higher rate taxpayers. You can use both if you qualify.

Does the dividend nil rate band depend on your tax band?

No. The dividend nil rate band is £500 for all taxpayers. The £500 is taxed at 0% but still counts as income in the band it falls into.

In what order is income taxed?

Non-savings income is taxed first, then savings income, then dividend income. This order decides which band each type falls into and is why dividends often attract the higher dividend rates.