Advanced Taxation (UK) · Income tax: the comprehensive computation of taxable income and the income tax liability

UK Income Tax Rates, Bands and Nil Rate Bands for ATX

Updated 11 October 2026 · Fact-checked

UK income tax is charged on taxable income in a fixed order: non-savings, then savings, then dividends. Each slice uses the bands first, at 20%, 40% and 45% for non-savings and savings income and 8.75%, 33.75% and 39.35% for dividends. Nil rate bands tax some income at 0% but still use up the band.

Understand Income Tax Rates, Bands and Nil Rate Bands

Your taxable income is split into three types: non-savings income (employment, trading, property), savings income (interest) and dividend income. Tax is always worked out in that order. The personal allowance is set against non-savings income first, then savings, then dividends.

The bands are measured on taxable income, which is income after the personal allowance. The basic rate band is the first £37,700. The higher rate band covers taxable income from £37,701 to £125,140. The additional rate applies above £125,140. Non-savings and savings income are taxed at 20%, 40% and 45%. Dividends are taxed at 8.75%, 33.75% and 39.35%.

Three nil rate bands sit on top of this. The starting rate for savings is 0% on savings income that falls within the first £5,000 of taxable income. It is only available if non-savings taxable income is below £5,000. The savings nil rate band (often called the personal savings allowance) is £1,000 for a basic rate taxpayer and £500 for a higher rate taxpayer. An additional rate taxpayer gets none. The dividend nil rate band is £500 for everyone.

The key idea is that a nil rate band is not a deduction from income. The income is still part of taxable income. It is taxed at 0%, and it still uses up the basic or higher rate band. This is why it can push you into the higher rate band sooner than you expect. It also decides which taxpayer you are, because your savings nil rate band depends on your taxable income including the savings and dividends.

In the exam, the tax tables give the 2025/26 rates, and the supplementary instructions say to assume they continue to apply unless told otherwise. So use the tables in front of you and do not rely on memory of other years.

Key rules to remember

Order of taxing income: Non-savings income → savings income → dividend income; Deduct the personal allowance in the same order. Slot each type into the bands in this order.
Bands (taxable income): Basic: £1 − £37,700 | Higher: £37,701 − £125,140 | Additional: over £125,140; Measured after the personal allowance, and nil rate band income counts towards the bands.
Non-savings and savings rates: 20% | 40% | 45%; Same rates for non-savings and savings income. Savings income is taxed at these rates once any nil rate bands are used.
Dividend rates: 8.75% | 33.75% | 39.35%; Apply to dividends above the dividend nil rate band, within each band.
Starting rate band for savings: Starting rate band = £5,000 − non-savings taxable income (if positive). Taxed at 0%.; If non-savings taxable income is £5,000 or more, there is no starting rate band.
Savings nil rate band: Basic rate taxpayer £1,000 | Higher rate taxpayer £500 | Additional rate taxpayer nil; Decide the taxpayer's status from taxable income including savings and dividends.
Dividend nil rate band: £500 for all taxpayers; Taxed at 0%, but uses up the band it falls in.
Personal allowance: £12,570, reduced by £1 for every £2 of adjusted net income over £100,000; nil at £125,140 or more; The reduction creates an effective 60% rate on non-savings income between £100,000 and £125,140.

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

Use the same layout for every question on rates and bands. A column for each income type keeps the bands clear and the marks easy to see.

1List the income in three columns: non-savings, savings (gross) and dividends. Add them for total income.
2Deduct the personal allowance, restricting it first if adjusted net income is over £100,000. Deduct against non-savings, then savings, then dividends.
3Find taxable income for each type and in total. The total decides whether the taxpayer is basic, higher or additional rate for the nil rate bands.
4Work out the starting rate band: £5,000 less non-savings taxable income. Use it only if the result is positive and savings income exists.
5Tax non-savings income through the bands first, at 20%, 40% and 45%. Track how much of the basic rate band is used.
6Tax savings income. Apply the starting rate, then the savings nil rate band, then tax the rest at the band rates. Use the savings nil rate band that matches the taxpayer's status.
7Tax dividends. Apply the £500 dividend nil rate band first, then tax the rest using the dividend rates within the remaining bands. Remember nil rate income still uses up the bands.
8Add the tax by type, then deduct any tax reducers or tax paid at source. Work to the nearest £ and show all workings.

Quickest way: Band-bucket method

When to use it: Use it when time is short and the question has several income types. It also works for tax planning questions that compare two outcomes.

Draw a ladder with the basic rate band at £37,700 and the higher rate band above it.
Pour non-savings taxable income in first, then savings, then dividends. Mark where each type crosses a band limit.
Write the nil rate bands (£5,000 starting rate for savings, £1,000 or £500 for savings, £500 for dividends) beside the income they cover.
Multiply each slice by its rate. A slice that sits at a band limit is split into two lines.
For planning questions, work only the changed slice, not the whole computation.

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

Giving a starting rate band when non-savings taxable income is £5,000 or more.
Students remember '£5,000 at 0%' but forget it is reduced by non-savings taxable income.
Fix: Always calculate £5,000 minus non-savings taxable income. If it is zero or negative, there is no starting rate band.
Using the £1,000 savings nil rate band for a higher rate taxpayer.
Students decide the status from non-savings income only, or assume everyone gets £1,000.
Fix: Add savings and dividends to find total taxable income. If it is over £37,700 the taxpayer is a higher rate taxpayer and gets £500. Above £125,140 the taxpayer gets nothing.
Treating nil rate bands as deductions that reduce taxable income.
The word 'allowance' suggests income is deducted before the bands apply.
Fix: Keep the income in taxable income. Tax it at 0% and let it use up the band. This is the difference from the personal allowance, which is deducted.
Using the wrong order of income when applying the personal allowance and bands.
Students start with dividends because they are the most visible number.
Fix: Always go non-savings, savings, then dividends. Dividends sit at the top of the income stack.
Taxing dividends at 20% or 40%.
Students mix up the normal and dividend rate columns in the tax tables.
Fix: Use 8.75%, 33.75% and 39.35% for dividends only. Say which column you are using in your working.
Forgetting to gross up interest or ignoring the personal allowance reduction over £100,000.
Time pressure and a rushed start to the computation.
Fix: Use the gross interest figure in the savings column. Check adjusted net income against £100,000 before using the full £12,570.

Worked examples

Example 1

Priya has employment income of £15,000 and gross bank interest of £6,000 for 2025/26. She has no other income. Calculate her income tax liability. Assume the tax tables for 2025/26 apply.

Show the solution

Total income is £15,000 + £6,000 = £21,000. The personal allowance of £12,570 is available as income is below £100,000.
Non-savings taxable income is £15,000 − £12,570 = £2,430. Savings taxable income is £6,000. Total taxable income is £8,430, so she is a basic rate taxpayer.
Non-savings tax: £2,430 × 20% = £486.
Starting rate band: £5,000 − £2,430 = £2,570. Savings income of £2,570 is taxed at 0%.
Savings nil rate band for a basic rate taxpayer is £1,000. A further £1,000 of savings income is taxed at 0%.
Remaining savings income is £6,000 − £2,570 − £1,000 = £2,430. Tax at 20% = £486.
Total tax is £486 + £0 + £0 + £486 = £972.

Answer: Priya's income tax liability is £972.

Example 2

Tom has employment income of £60,000, gross bank interest of £3,000 and dividends of £10,000 for 2025/26. Calculate his income tax liability. Assume the tax tables for 2025/26 apply.

Show the solution

Total income is £60,000 + £3,000 + £10,000 = £73,000. This is below £100,000, so the full personal allowance of £12,570 applies and is set against the non-savings income.
Taxable income: non-savings £47,430, savings £3,000, dividends £10,000. Total is £60,430. This is over £37,700 and below £125,140, so he is a higher rate taxpayer.
Starting rate band: non-savings taxable income is above £5,000, so none is available. Savings nil rate band for a higher rate taxpayer is £500.
Non-savings: £37,700 × 20% = £7,540. The remaining £9,730 × 40% = £3,892.
Savings: all £3,000 falls in the higher rate band. £500 is at 0%. £2,500 × 40% = £1,000.
Dividends: all £10,000 falls in the higher rate band. £500 is at 0% (dividend nil rate band). £9,500 × 33.75% = £3,206.
Total tax: £7,540 + £3,892 + £1,000 + £3,206 = £15,638.

Answer: Tom's income tax liability is £15,638.

Exam tips

Show the three-column layout and the order of taxing. It earns method marks even if one figure is wrong.
State the taxpayer's status (basic, higher or additional) and why, because it decides the savings nil rate band. Examiners look for this.
Check the tax tables in the exam for the rates. Read the 'dividend rates' column for dividends and the 'normal rates' column for everything else.
In planning questions, such as paying a dividend instead of salary or moving interest to a spouse, calculate the extra tax on the changed slice. Mention the effect on the starting rate and nil rate bands.
Work to the nearest £ as the supplementary instructions require. Show all workings, and use the professional skills marks to explain your advice clearly to the client.

Practice questions from Income tax: the comprehensive computation of taxable income and the income tax liability

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.

ACCA Applied SkillsIncome Tax Rates, Bands and Nil Rate Bands

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

What is the difference between the dividend allowance and the dividend nil rate band?

The current £500 relief is a nil rate band, not an allowance. Dividends in it stay in taxable income and are taxed at 0%. They still use up the basic or higher rate band, so they can push other income into a higher band.

How do I calculate tax on savings income with the starting rate band?

Take £5,000 and deduct non-savings taxable income, which is income after the personal allowance. If the answer is positive, that much savings income is taxed at 0%. Then apply the savings nil rate band of £1,000 or £500. Tax anything left at 20%, 40% or 45%.

Do higher rate taxpayers get a £500 personal savings allowance?

Yes. A higher rate taxpayer gets a £500 savings nil rate band and a basic rate taxpayer gets £1,000. An additional rate taxpayer gets none. Status is decided by total taxable income, including savings and dividends.

Are these the 2026/27 rates for ATX?

The ATX-UK tax tables for the exam period use the rates for 2025/26 under Finance Act 2025. The supplementary instructions say to assume these continue to apply unless the question says otherwise. Use the tables printed in the exam.

Where is the tax table information in the exam?

The exam reproduces the rates, bands and allowances and the supplementary instructions. You do not need to memorise the figures, but you must know how to apply them. Practise with the tables open so you know where each rate sits.