UK personal tax basics: what every resident should know
Which taxes apply to UK residents, how PAYE and Self Assessment work, how savings and investments are taxed and when to ask a professional.
Most people in the UK pay tax without thinking about it, because their employer takes it from their pay. That works well until something changes: a side income, a rental flat, a large amount of savings interest, or a move to self-employment.
This guide explains the main personal taxes that apply to UK residents, how the yearly tax cycle works, the most common mistakes, and when it makes sense to get professional help. It does not quote rates or thresholds, which change; check those on GOV.UK.
In 30 seconds
- The UK tax year runs from 6 April to 5 April.
- Employees pay Income Tax and National Insurance through PAYE; your tax code decides how much is taken.
- Savings interest, dividends and gains have their own allowances; ISAs and pensions shelter money from tax.
- Self Assessment is needed for self-employment, rental income and some other situations.
- Check your personal tax account on GOV.UK at least once a year.
The taxes that affect most residents
Personal tax in the UK is run mainly by HM Revenue and Customs (HMRC). Council tax is collected by your local council. The table below shows the taxes most households meet.
| Tax | What it applies to | How it is usually paid |
|---|---|---|
| Income Tax | Wages, self-employed profits, pensions, rental profits, some benefits, and savings and dividend income above allowances | PAYE through your employer or pension provider, or Self Assessment |
| National Insurance | Earnings from work and self-employed profits; builds your State Pension record | PAYE, or Self Assessment for the self-employed |
| Capital Gains Tax | Profits when you sell or give away certain assets, such as shares outside an ISA or a second property | Self Assessment or a separate HMRC reporting service |
| Council tax | Your home, based on its valuation band | Direct to your local council, usually in monthly instalments |
| Stamp Duty Land Tax | Buying property in England and Northern Ireland above a threshold (Scotland and Wales have their own taxes) | Usually handled by your solicitor or conveyancer |
Scotland sets its own Income Tax rates and bands for earnings, so the amount taken from the same salary can differ between Scotland and the rest of the UK. National Insurance works the same across the UK.
Income Tax, National Insurance and PAYE
Most people have a Personal Allowance, an amount of income each year on which no Income Tax is due. Income above it is taxed in bands, with higher rates on higher slices of income. The allowance can be reduced for people with high incomes.
If you are employed or receive a workplace or personal pension, tax is usually taken before you are paid through Pay As You Earn (PAYE). Your employer uses a tax code from HMRC to work out how much to deduct. The code reflects your allowance, and it can be adjusted for things such as a company car, untaxed income or tax owed from an earlier year.
Tax on savings and investments
Savings interest, dividends from shares and funds, and gains when you sell investments are each treated differently.
- Savings interest: many people can earn some interest tax-free through the Personal Savings Allowance, and some people on lower incomes also benefit from a starting rate for savings. Our guide to UK savings accounts covers where interest-bearing accounts fit in.
- Dividends: there is a yearly dividend allowance. Dividends above it are taxed at dividend rates, which depend on your Income Tax band.
- Capital gains: there is an annual exempt amount. Gains above it may be taxable. Your main home is usually exempt when you sell it.
Money held in an ISA is free of UK Income Tax and Capital Gains Tax, and you do not need to report it. Pension contributions receive tax relief, and growth inside a pension is not taxed, although pension income is usually taxable when you take it. Our guides to index funds and retirement saving explain these wrappers in more detail.
How Self Assessment works
Self Assessment is the system HMRC uses to collect tax that is not taken automatically. You need to file a return if, for example, you are self-employed, receive income from property, or have untaxed income that cannot be collected through your tax code. GOV.UK has a checker for each tax year.
- Register in good time
If you need to file for the first time, register with HMRC by 5 October after the end of the tax year in which the new income started, and check the date on GOV.UK. Registration gives you the reference number you need to file.
- Keep records during the year
Keep invoices, receipts, bank statements and a record of expenses. The self-employed and landlords need records that support every figure on the return.
- Complete the return
Most people file online through their HMRC account. You report income and allowable expenses, and the system calculates the tax due.
- Pay the bill
Pay any tax owed by the deadline. Some people also make advance payments towards the next year, called payments on account.
- Check the result
Compare HMRC’s calculation with your own. Keep a copy of the return and your records for the period HMRC requires.
For many years the deadlines have been 31 October for paper returns and 31 January for online returns and payment, following the end of the tax year. Check the official calendar on GOV.UK each year. Making Tax Digital for Income Tax, which requires digital records and quarterly updates, is being phased in for some self-employed people and landlords; check on GOV.UK whether and when it applies to you.
If you are self-employed, estimate your tax from last year’s return or from your profits so far, and move money into a separate savings account each month. The figures above are an illustration, not an estimate of anyone’s bill.
Common mistakes
- Not checking your tax code after a new job, a second job or a change in benefits.
- Forgetting to report income from a side business, online selling that counts as trading, or letting a room.
- Spending money that should have been set aside for a Self Assessment bill.
- Not claiming reliefs you are entitled to, such as tax relief on some work expenses, pension tax relief at the higher rate, or the Marriage Allowance.
- Missing the High Income Child Benefit Charge when one partner’s income rises.
- Throwing away records too early.
When to ask a professional
Many people can handle a simple return themselves. Professional help is often worth considering when your situation is more complex, for example if you:
- start a business or become a partner in one;
- own rental property, especially more than one;
- sell a second home, a business or a large investment portfolio;
- have income or assets abroad, or move to or from the UK;
- have received a letter from HMRC opening an enquiry.
Look for a qualified accountant or chartered tax adviser, and ask about fees in advance. If your income is low, free help is available from tax charities and from Citizens Advice, which can point you to the right service.
Official sources
- HM Revenue & Customs (HMRC): official guidance, tax codes and how HMRC contacts you.
- GOV.UK: your personal tax account, the Self Assessment checker and current rates and allowances.
- Citizens Advice: free help if you are struggling with a tax bill or HMRC debt.
Frequently asked questions
Do I need to fill in a Self Assessment tax return?
You usually need to if you are self-employed, receive rental income, have untaxed income from savings or investments above your allowances, or have to pay the High Income Child Benefit Charge. There are other triggers too. GOV.UK has a short checker that tells you whether you need to file for a given tax year.
How do I know if my tax code is right?
Your tax code is on your payslip and in your personal tax account on GOV.UK or the HMRC app. Check that it reflects your allowance and any benefits, such as a company car, and that you do not have an emergency code. If it looks wrong, contact HMRC, as a wrong code can mean paying too much or too little tax.
Is interest from my savings taxed?
It can be. Many people can earn some savings interest tax-free through the Personal Savings Allowance, and interest inside an ISA is not taxed at all. If your interest goes above your allowances, tax may be collected through your tax code or a tax return. Check the current allowances on GOV.UK.
What happens if I miss the Self Assessment deadline?
HMRC can charge a penalty for a late return even if you owe no tax, and further penalties and interest can apply the longer it stays late. Filing as soon as possible limits the cost. If you had a genuine reason for missing the deadline, you can ask HMRC to review the penalty.
