Advanced Taxation (UK) · Tax administration and the UK tax system

Income Tax Rates, Bands and the Cap on Reliefs for ACCA ATX

Updated 11 October 2026 · Fact-checked

Income tax is charged on taxable income in a fixed order: non-savings, then savings, then dividends. Each slice uses the bands (£37,700 basic, up to £125,140 higher) at its own rates. Nil rate bands sit inside the bands. Certain reliefs are capped at the higher of £50,000 or 25% of income.

Understand Income Tax Rates, Bands and the Cap on Reliefs

UK income tax is not one rate on one pile of income. You split taxable income into three types: non-savings income (employment, trading, property), savings income (interest) and dividend income. Each type has its own rates, and they are stacked in that order: non-savings first, savings second, dividends last.

The bands are the same for all three types. The basic rate band covers the first £37,700 of taxable income. The higher rate band covers £37,701 to £125,140. Above £125,140 is the additional rate. 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 slices reduce the tax. The starting rate for savings is 0% on savings income that falls within the first £5,000 of taxable income. So non-savings income eats into it, and it is gone once non-savings taxable income reaches £5,000. The savings nil rate band is £1,000 for a basic rate taxpayer and £500 for a higher rate taxpayer. The dividend nil rate band is £500 for everyone. Additional rate taxpayers get no savings nil rate band.

A nil rate band is taxed at 0%, but it still uses up part of the band it sits in. This matters when income straddles £37,700. Your taxpayer status (basic, higher or additional) is set by your total taxable income, including savings and dividends. That status decides whether the savings nil rate band is £1,000 or £500.

Separately, the cap on income tax reliefs limits certain reliefs you can deduct from total income. The cap is the higher of £50,000 or 25% of income, unless the relief is otherwise restricted. It stops high earners wiping out their tax with large reliefs. For ATX-UK exams from June 2026 to June 2027 you use the rates in the tax tables ACCA gives you, which assume the 2025/26 rates continue.

Key rules to remember

Normal rates and bands (non-savings and savings): Basic £1 – £37,700 at 20%; Higher £37,701 – £125,140 at 40%; Additional over £125,140 at 45%; Savings income uses these same rates, after any starting rate or savings nil rate band.
Dividend rates: Basic 8.75%; Higher 33.75%; Additional 39.35%; Same bands as above. Dividends are the top slice of income.
Order of taxing income: Non-savings → Savings → Dividends; Fill the bands in this order. Dividends are taxed last, so they are most likely to fall in the higher bands.
Starting rate for savings: 0% on savings income within the first £5,000 of taxable income; Available band = £5,000 – non-savings taxable income. If that is nil or negative, there is no starting rate.
Savings nil rate band: Basic rate taxpayer £1,000; higher rate taxpayer £500; Additional rate taxpayers get none. Status depends on total taxable income.
Dividend nil rate band: £500 for all taxpayers; Taxed at 0%, but it still uses up band.
Cap on income tax reliefs: Cap = higher of £50,000 and 25% × income; Applies unless the relief is otherwise restricted. Work out both figures and take the larger.

How to solve Income Tax Rates, Bands and the Cap on Reliefs questions

Use this method for any question that asks for income tax on a mix of income types, or that tests the reliefs cap.

1Split taxable income into non-savings, savings and dividends. Deduct the personal allowance and reliefs as the question requires, using the tax tables for the allowance.
2Add the three types to get total taxable income. This sets your status (basic, higher or additional), which fixes the savings nil rate band at £1,000 or £500.
3Tax non-savings income first. Use 20% up to £37,700, then 40%. Note how much of the basic rate band is left.
4Tax savings income next. Apply the starting rate if non-savings taxable income is under £5,000, then the savings nil rate band, then 20% or 40% on the rest, tracking band use.
5Tax dividends last. Apply the £500 dividend nil rate band, then 8.75%, 33.75% or 39.35% depending on which band each slice falls in. Split dividends that straddle a band limit.
6Add the tax on all three types. Round to the nearest £ as the supplementary instructions allow, and show every working.
7If reliefs are claimed, test the cap first: calculate 25% of income, compare with £50,000, take the higher, and restrict the capped reliefs to that amount.

Quickest way: Band tracker method

When to use it: Use it when a question mixes salary, interest and dividends and you have little time.

Draw a one-line bar from £0 to £37,700 and mark it as you fill it.
Write non-savings, then savings, then dividends beside it, each with its taxable amount.
Run a cumulative total. Wherever it crosses £37,700, split that slice.
Write the nil rate amount (starting rate, savings £1,000 or £500, dividend £500) as a separate 0% line inside the right band.
Multiply each line by its rate and add them up. Check that the taxable amounts on your lines add back to total taxable income.

Common mistakes in Income Tax Rates, Bands and the Cap on Reliefs

Taxing dividends before savings or non-savings income
Students tax in the order the income appears in the question.
Fix: Always stack non-savings, then savings, then dividends. Dividends are the top slice.
Using the £1,000 savings nil rate band for a higher rate taxpayer
Students judge status from non-savings income alone.
Fix: Status depends on total taxable income including savings and dividends. If it is over £37,700, the nil rate band is £500.
Treating nil rate bands as if they do not use up the basic rate band
Students think 0% income is outside the bands.
Fix: Nil rate income still counts towards the £37,700. Include it in your cumulative total.
Giving the starting rate for savings when salary is above £5,000
Students see 'first £5,000' and forget it is taxable income, not savings.
Fix: Starting rate band = £5,000 less non-savings taxable income. Over £5,000 of non-savings income means none.
Applying the reliefs cap as a flat £50,000 only
Students remember the £50,000 and forget the 25% alternative.
Fix: Compute 25% of income too and use whichever is higher.
Applying the cap to every deduction
Students assume the cap covers all reliefs.
Fix: Apply it only to the reliefs the question treats as capped, such as trading loss relief against general income. Pension contributions and Gift Aid are dealt with under their own rules, not this cap.

Worked examples

Example 1

Anna has taxable income for 2025/26 of non-savings income £30,000, savings income £6,000 and dividends £8,000, all after the personal allowance. Calculate her income tax liability.

Show the solution

Total taxable income = £30,000 + £6,000 + £8,000 = £44,000. This is over £37,700, so she is a higher rate taxpayer. Her savings nil rate band is £500.
Non-savings: £30,000 × 20% = £6,000. Basic rate band left = £37,700 – £30,000 = £7,700.
Starting rate: £5,000 – £30,000 is negative, so none.
Savings: £6,000 fits in the £7,700 left. £500 is at 0%. £5,500 × 20% = £1,100. Basic rate band left = £7,700 – £6,000 = £1,700.
Dividends: £1,700 fall in the basic rate band. The first £500 is at 0%. £1,200 × 8.75% = £105.
The other dividends = £8,000 – £1,700 = £6,300, taxed at 33.75% = £2,126.25.
Total = £6,000 + £1,100 + £105 + £2,126.25 = £9,331.25.

Answer: Income tax liability is £9,331 (to the nearest £).

Example 2

Raj has income of £160,000 for 2025/26 before reliefs. He claims trading loss relief of £45,000 and qualifying loan interest relief of £15,000, both subject to the cap. Gift Aid is dealt with separately. (a) How much relief is allowed? (b) How would your answer change if his income were £280,000?

Show the solution

(a) 25% of income = 25% × £160,000 = £40,000.
The higher of £50,000 and £40,000 is £50,000, so the cap is £50,000.
Reliefs claimed subject to the cap = £45,000 + £15,000 = £60,000.
Allowed = £50,000. Excess of £10,000 is not deducted in this tax year.
(b) 25% × £280,000 = £70,000. This is higher than £50,000, so the cap is £70,000.
Reliefs of £60,000 are below £70,000, so all are allowed.

Answer: (a) £50,000 relief is allowed and £10,000 is restricted. (b) The cap rises to £70,000, so the full £60,000 is allowed.

Exam tips

The tax tables are given in the exam. Learn how to use them, not just what is in them. Know where the bands, nil rate bands and cap sit.
Show every working, including the band left after each type of income. Marks go for method even if a figure is wrong.
Always state the taxpayer status you used for the savings nil rate band. It shows the marker you have noticed the £1,000 and £500 difference.
In planning questions, explain the benefit: for example, how moving income between types or years changes which rate applies. Link the numbers to the client's objective to earn professional skills marks.
When a relief is large, test the cap first. Write both figures, £50,000 and 25% of income, so the marker sees the comparison.

Practice questions from Tax administration and the UK tax system

Income Tax Rates, Bands and the Cap on Reliefs 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 Order of Taxation

Income Tax Rates, Bands and the Cap on Reliefs: frequently asked questions

What are the income tax rates and bands in ATX-UK for June 2026 to June 2027?

The tables assume the 2025/26 rates continue. Normal rates are 20% to £37,700, 40% to £125,140 and 45% above. Dividend rates are 8.75%, 33.75% and 39.35%. Always check the tables printed in your exam.

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

The savings nil rate band is £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. Additional rate taxpayers get none. The dividend nil rate band is £500 for everyone. Both are taxed at 0% and still use up band.

How does the cap on income tax reliefs work?

Capped reliefs cannot exceed the higher of £50,000 or 25% of income. Work out 25% of income, compare it with £50,000 and use the larger. Any relief above the cap is restricted unless the question says otherwise.

How do I calculate income tax with dividends and savings income?

Tax non-savings income first, then savings, then dividends, tracking how much of the £37,700 basic rate band is used. Apply the nil rate bands inside the bands, then tax the rest at the right rate for each type.