Billy Brownless: Relationship, Net Worth, and Family

The UK’s tax system is notoriously complex, with over 10 million words of tax legislation. This guide provides a clear, practical overview of the key taxes affecting individuals and businesses in the UK for the 2025/26 tax year, based on official HMRC guidance and current legislation.

Income Tax: The Core System

Income tax is the UK’s largest revenue raiser. For the 2025/26 tax year, the personal allowance remains at £12,570, meaning you pay no tax on the first £12,570 of your income. This allowance is frozen until April 2028, a policy known as “fiscal drag” that pulls more people into paying tax as wages rise with inflation.

The basic rate of 20% applies to income between £12,571 and £50,270. The higher rate of 40% applies to income between £50,271 and £125,140. The additional rate of 45% applies to income over £125,140 (or £125,141 for non-savings, non-dividend income in Scotland). These thresholds have been frozen until April 2028, according to HMRC.

The “60% trap” is real. For every £1 earned between £100,000 and £125,140, you face an effective 60% tax rate due to the withdrawal of the personal allowance. This is a key planning trigger for pension contributions, which can reduce adjusted net income below this band.

— HMRC technical guidance, April 2024

For Scottish taxpayers, income tax rates and bands are set separately by the Scottish Parliament. The starter rate is 19% (up to £2,306), basic rate 20% (£2,307–£13,991), intermediate rate 21% (£13,992–£31,092), higher rate 42% (£31,093–£125,140), and top rate 47% (over £125,140). Welsh taxpayers follow UK-wide rates but with some devolved control over bands.

The implication: The freeze on thresholds is a stealth tax increase. Without action, you’ll pay more tax each year as your income rises with inflation. The 60% trap above £100,000 is the biggest planning opportunity—pension contributions or salary sacrifice can yield substantial tax savings.

National Insurance Contributions

National Insurance (NI) is a separate tax paid by employees, employers, and the self-employed. For employees in 2025/26, Class 1 contributions apply: 8% on earnings between £12,570 and £50,270, and 2% on anything above £50,270. You pay no NI on the first £12,570.

Employers pay Class 1 secondary contributions of 13.8% on earnings above £9,100 per employee. There’s also an Employer National Insurance bill that—combined with Employer Pension contributions—adds roughly 18–20% to the cost of employing someone, a key consideration for business owners.

The NI rules are the same across the UK, unlike income tax. However, there’s a growing divergence: Scotland has different income tax bands, while Wales has limited devolved powers. Always check your tax code if you live or work across borders.

— Low Incomes Tax Reform Group, January 2024

What this means: If you’re employed, your NI contribution rate is 8% on most income, plus your employer pays 13.8% on top. If you’re self-employed, your combined NI contributions are lower than an employee’s share, but you don’t get employer contributions. The freeze on NI thresholds (like income tax bands) means more of your income is subject to NI as wages rise.

Capital Gains Tax

Capital Gains Tax (CGT) is payable on the profit when you sell an asset (not the sale proceeds). Key rates in 2025/26: 10% for basic rate taxpayers (on gains within the basic rate band), 20% for higher rate taxpayers. For residential property and carried interest, the rates are 18% (basic) and 24% (higher/additional).

The annual exemption has been dramatically cut: from £12,300 in 2022/23 to £6,000 in 2023/24, then £3,000 from April 2024 onward. This means most people will face a CGT bill on smaller gains. There’s no indexation allowance for individuals (abolished in 2008 except for companies), so purely inflationary gains are taxed.

Losses can be offset against current year gains or carried forward indefinitely, but only against gains of the same type (or most gains). The “bed and breakfasting” rule prevents you from buying back the same asset within 30 days.

The pattern: The government is aggressively reducing CGT reliefs. The annual exemption has fallen 76% in two years. For anyone holding assets outside an ISA or pension, careful timing of disposals and using losses is more important than ever. The main residence relief (Private Residence Relief) remains generous, but the final period exemption was cut from 18 months to 9 months from April 2024.

Corporation Tax

From 1 April 2023, the main rate of Corporation Tax increased to 25% for profits over £250,000. Companies with profits of £50,000 or less pay the small profits rate of 19%. There’s a marginal relief band between £50,000 and £250,000, giving an effective marginal rate of 26.5% on profits in this band.

Related companies (under common control) are required to share the £50,000 and £250,000 thresholds, preventing fragmentation of profits. The “associated company” rules are complex.

The trade-off: The 25% headline rate is still lower than the pre-2010 main rate of 30%, but the marginal relief band creates a 26.5% effective rate on mid-range profits. For groups of companies, careful structuring of profits across entities can reduce the overall tax bill—but the associated company rules limit this.

Value Added Tax

VAT is a consumption tax charged at 20% standard rate on most goods and services. A reduced rate of 5% applies to some items (e.g., children’s car seats, domestic fuel). Zero-rated items include most food, children’s clothing, and books. Exempt items include financial services, education, and health.

The VAT registration threshold is £90,000 turnover in a rolling 12-month period. Once registered, you must charge VAT (output tax) on your sales, and can reclaim VAT on your purchases (input tax). The threshold has been frozen for several years, pulling more small businesses into registration.

There are special schemes: the Flat Rate Scheme (simplified calculation, fixed percentage), the Annual Accounting Scheme (annual returns), and the Cash Accounting Scheme (pay when customer pays).

The catch: The £90,000 threshold is frozen, meaning it doesn’t rise with inflation. A business with turnover of £85,000 today might cross £90,000 in a year just through price increases. Once registered, you face quarterly filing and payment obligations, and you must charge customers 20% more. Many businesses choose to “stay under” the threshold, but this limits growth.

Inheritance Tax

Inheritance Tax (IHT) is charged at 40% on the value of an estate above the nil-rate band of £325,000. There’s an additional residence nil-rate band of £175,000 if you leave your home to direct descendants, giving a total combined nil-rate band of up to £500,000 for an individual. Unused nil-rate bands can be transferred between spouses, giving married couples up to £1 million tax-free.

Gifts made more than 7 years before death are generally exempt from IHT (though there’s a sliding scale of tax if you die within 7 years). Annual gifting exemptions: £3,000 per year, plus small gifts of up to £250 per person. Regular gifts out of income are also exempt if they don’t affect your standard of living.

Business property relief and agricultural property relief can reduce IHT on qualifying assets by 50% or 100%.

Why this matters: IHT is often called the “voluntary tax” because good planning can eliminate or reduce it. But with frozen nil-rate bands (£325,000 until 2028) and rising property values, more estates are captured. The residence nil-rate band is valuable but only applies if you leave your home to direct descendants.

Tax Planning and Allowances

Several allowances can reduce your tax bill. The Personal Savings Allowance gives basic rate taxpayers £1,000 of savings interest tax-free (£500 for higher rate, £0 for additional rate). The Dividend Allowance is now just £500—down from £5,000 in 2017/18.

ISAs are the most powerful tax shelter: you can invest up to £20,000 per year, and all growth is free from income tax and CGT. Lifetime ISAs allow up to £4,000 per year (within the £20,000 limit) with a 25% government bonus, but money is locked until age 60 unless you’re buying a first home.

Pension contributions are also highly tax-efficient. For basic rate taxpayers, each £100 contributed costs only £80 net (with the 20% tax relief added automatically by the pension provider). Higher rate taxpayers can claim additional relief through their tax return, making contributions even more valuable.

The Annual Allowance for pension contributions is £60,000 (including employer contributions). The Money Purchase Annual Allowance (if you’ve flexibly accessed a pension) is just £10,000. The Tapered Annual Allowance applies to those with income over £260,000, reducing the allowance by £1 for every £2 of income over that threshold, down to a minimum of £10,000.

— HM Treasury, Autumn Statement 2023

The implication: The £20,000 ISA allowance is the single most valuable tax break for most investors. Combined with pension contributions, you can shelter £60,000+ per year from tax. But the Dividend Allowance cut from £5,000 to £500 means company owners drawing dividends face higher tax—consider using pension contributions instead.

HMRC Compliance and Deadlines

For Self Assessment, the key deadlines are: 31 October for paper returns, 31 January for online returns and first payment on account, and 31 July for second payment on account. Filing online is now standard for most people.

HMRC’s penalties for late filing and late payment: an initial £100 penalty for being up to 1 day late, rising to additional penalties of £10 per day after 3 months (up to 90 days), then 5% of tax due after 6 and 12 months. Interest is charged on late payments at the Bank of England base rate plus 2.5%.

HMRC’s “Making Tax Digital” (MTD) programme is expanding. VAT-registered businesses must use MTD-compatible software. MTD for Income Tax is being phased in from April 2026 for sole traders and landlords with income over £50,000.

The trade-off: Digital reporting reduces errors and gives HMRC real-time data, but imposes software costs of £100–£500 per year for small businesses. The government’s objective is to close the “tax gap” (the difference between tax legally due and tax paid), estimated at £35 billion in 2021/22, or about 4.8% of theoretical tax liabilities.

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