Tax Basics

Tax is a subject many people avoid engaging with beyond the minimum required. That's understandable: it's complex, the language is technical, and the consequences of getting it wrong feel disproportionate. But a working understanding of the basics is genuinely useful, both for making good financial decisions and for avoiding the kind of avoidable errors that create problems later.

This topic covers the fundamentals. It doesn't attempt to be a comprehensive tax guide; that would require a considerably longer document and professional input for individual circumstances. The aim is a clear enough picture that you know what matters and when to seek help.

The tax year

The UK tax year runs from 6 April to 5 April the following year. This matters for several reasons. ISA allowances reset on 6 April: any unused allowance from the previous year is lost. Pension annual allowances follow the same cycle. Self Assessment tax returns cover a tax year and are due by 31 January following the end of that year. Capital gains tax is calculated on a tax year basis.

Getting into the habit of an annual financial review around April is sensible. The tax year end is a natural prompt to check ISA contributions, review pension contributions, and consider whether there are any actions worth taking before the allowances reset.

Income tax and the personal allowance

Everyone in the UK has a personal allowance: the amount of income you can receive before paying income tax. In 2025/26, this is £12,570. Income above that threshold is taxed at the following rates in England, Wales, and Northern Ireland:

The personal allowance tapers away for incomes above £100,000, reducing by £1 for every £2 of income above that threshold. At £125,140 it is eliminated entirely, creating an effective marginal tax rate of 60% on income between £100,000 and £125,140. Pension contributions can reduce adjusted net income and restore some or all of the personal allowance in this range.

Self Assessment: who needs it

Self Assessment is the system by which people with certain types of income report it to HMRC and pay any tax owed. You are required to complete a Self Assessment return if any of the following apply:

• You are self-employed with trading income above £1,000
• You receive income from property
• Your income exceeds £100,000
• You have untaxed income above £2,500 (from savings interest, dividends, or other sources)
• You or your partner receive Child Benefit and either earns above £60,000 (the High Income Child Benefit Charge applies)
• You have capital gains above the annual exempt amount

Key deadlines