Tax code
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A tax code is the reference an employer uses to work out how much income tax to deduct through PAYE. The standard code for 2026/27 is 1257L, which gives the £12,570 personal allowance spread across the year, as explained on gov.uk's tax codes page.
Personal allowance
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The personal allowance is the amount of income on which no income tax is paid: £12,570 in 2026/27, per gov.uk's income tax rates page. It is withdrawn at £1 for every £2 of adjusted net income above £100,000 and is nil from £125,140.
Marginal tax rate
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The marginal tax rate is the share of the next pound of income taken in tax and National Insurance. In 2026/27 an employee outside Scotland pays 28% on income between £12,570 and £50,270, 42% up to £100,000, an effective 62% up to £125,140 because of the personal allowance taper, and 47% above that.
60% tax trap
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The 60% tax trap is the effective income tax rate between £100,000 and £125,140, where each £100 of extra income is taxed at 40% and also removes £50 of personal allowance that is then taxed at 40%, as set out on gov.uk's page on income over £100,000.
Adjusted net income
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Adjusted net income is total taxable income less certain reliefs, chiefly gross pension contributions and Gift Aid donations, as defined on gov.uk. It decides the personal allowance taper above £100,000 and the High Income Child Benefit Charge above £60,000.
High Income Child Benefit Charge (HICBC)
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The High Income Child Benefit Charge is a tax charge that claws back Child Benefit when the higher earner in a household has adjusted net income above £60,000, at 1% of the benefit for every £200 above the threshold until it is fully repaid at £80,000, per gov.uk's Child Benefit tax charge page.
National Insurance (employee Class 1)
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Employee National Insurance is a payroll contribution charged at 8% on earnings between £12,570 and £50,270 a year and 2% above that in 2026/27, per gov.uk's National Insurance rates page.
Section 24 (landlord finance cost restriction)
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Section 24 is the shorthand for the rule, introduced by the Finance (No. 2) Act 2015 and fully in force since 2020/21, under which individual landlords cannot deduct mortgage interest from rental profits and instead receive a tax credit of 20% of the finance costs, as explained in gov.uk's guidance on tax relief for residential landlords.
Pension annual allowance
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The annual allowance is the most that can be paid into pensions in a tax year with tax relief: £60,000 in 2026/27, tapered by £1 for every £2 of adjusted income above £260,000 down to a floor of £10,000, per gov.uk's annual allowance page. Contributions above it attract an annual allowance charge.
Money purchase annual allowance (MPAA)
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The money purchase annual allowance is the reduced limit of £10,000 a year that applies to defined contribution pension savings once a person has flexibly accessed a pension, as set out on gov.uk.
Second home surcharge (higher rates for additional dwellings)
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The second home surcharge is the extra Stamp Duty Land Tax charged in England and Northern Ireland on buying a residential property when the buyer already owns another: 5 percentage points on top of each standard band since 31 October 2024, per gov.uk. Scotland charges an 8% Additional Dwelling Supplement and Wales applies higher rates of Land Transaction Tax.
Capital Gains Tax annual exempt amount
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The annual exempt amount is the amount of capital gains that is tax free each year: £3,000 in 2026/27, per gov.uk's Capital Gains Tax rates page. Gains above it on residential property are taxed at 18% within the basic rate band and 24% above it.
Take-home pay
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Take-home pay, or net pay, is gross pay less income tax, employee National Insurance and any pension or student loan deductions taken through payroll. It is the amount that reaches the bank account.
Salary sacrifice
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Salary sacrifice is an agreement to give up part of gross salary in exchange for a non-cash benefit, most often an employer pension contribution, so that both income tax and National Insurance are calculated on the reduced salary, as described in gov.uk's guidance on salary sacrifice for employers.
Universal Credit taper rate
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The Universal Credit taper rate is the amount by which a Universal Credit award falls for each pound of net earnings above any work allowance; it is 55p in the pound, as stated on gov.uk's page on how earnings affect Universal Credit payments.
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