Why Law Students Need to Know Tax Rates
Tax law is one of the most frequently examined areas across both the SQE1 and university law modules, yet it is also where students lose the most marks through simple factual errors. Citing last year's income tax bands, using an outdated CGT annual exempt amount, or confusing the employer and employee National Insurance rates can turn a strong legal analysis into a failed answer. This quick reference page gives you every figure you need for the 2025-26 tax year (6 April 2025 to 5 April 2026), sourced directly from GOV.UK and HMRC publications.
Bookmark this page. Print it. Keep it next to your revision notes. When you sit down to answer a tax law problem question in an exam or an SQE1 mock, these are the numbers that must be at your fingertips.
Key Takeaway
Income Tax (England, Wales & Northern Ireland)
Income tax is the single most important tax for SQE students to know. The rates apply to employment income, self-employment profits, pension income, and rental income (after deducting the personal allowance). Note that Scotland has its own rates — covered separately below.
| Band | Taxable Income | Rate |
|---|---|---|
| Personal Allowance | Up to £12,570 | 0% |
| Basic Rate | £12,571 – £50,270 | 20% |
| Higher Rate | £50,271 – £125,140 | 40% |
| Additional Rate | Over £125,140 | 45% |
Important for exam answers: The personal allowance is reduced by £1 for every £2 of adjusted net income above £100,000. This means the allowance is completely eliminated at £125,140. This "60% trap" (where the effective marginal rate is 60% between £100,000 and £125,140) is a favourite exam question topic.
Scottish Income Tax 2025-26
Scotland has its own income tax rates set by the Scottish Parliament. If an SQE question specifies a Scottish taxpayer, you must use these rates instead. Scotland has six bands compared to three in the rest of the UK.
| Band | Taxable Income | Rate |
|---|---|---|
| Personal Allowance | Up to £12,570 | 0% |
| Starter Rate | £12,571 – £14,876 | 19% |
| Basic Rate | £14,877 – £26,561 | 20% |
| Intermediate Rate | £26,562 – £43,662 | 21% |
| Higher Rate | £43,663 – £75,000 | 42% |
| Advanced Rate | £75,001 – £125,140 | 45% |
| Top Rate | Over £125,140 | 48% |
Capital Gains Tax (CGT)
CGT is charged on the disposal of assets such as shares, property, and business assets. The annual exempt amount has been drastically reduced in recent years — from £12,300 in 2022-23 to just £3,000 now. This is a common exam trap: students often cite the old, higher figure.
| Detail | 2025-26 Figure |
|---|---|
| Annual Exempt Amount (individuals) | £3,000 |
| Annual Exempt Amount (most trustees) | £1,500 |
| Lower Rate (basic rate taxpayers) | 18% |
| Higher Rate (higher/additional rate taxpayers) | 24% |
| Residential Property (basic / higher) | 18% / 24% |
| Business Asset Disposal Relief (BADR) | 14% |
| Investors' Relief | 14% |
| Carried Interest | 32% |
Exam tip: BADR (formerly Entrepreneurs' Relief) has a lifetime limit of £1 million. The rate increased from 10% to 14% from 6 April 2025 — a recent change that examiners will test.
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Corporation Tax
Corporation tax applies to the profits of UK-resident companies and non-resident companies with a UK permanent establishment. The two-tier rate structure was reintroduced from 1 April 2023.
| Profit Level | Rate |
|---|---|
| Small Profits Rate (profits under £50,000) | 19% |
| Marginal Relief (profits £50,000 – £250,000) | Between 19% and 25% |
| Main Rate (profits over £250,000) | 25% |
Exam tip: For associated companies, the thresholds are divided by the number of associated companies plus one. This is a common SQE1 Business Law question.
Value Added Tax (VAT)
VAT is an indirect tax on the supply of goods and services. Understanding the three rates and the registration threshold is essential for both SQE1 and practice.
| Category | Rate / Threshold |
|---|---|
| Standard Rate | 20% |
| Reduced Rate (e.g., domestic fuel, children's car seats) | 5% |
| Zero Rate (e.g., most food, children's clothing, books) | 0% |
| Registration Threshold | £90,000 |
The registration threshold was increased from £85,000 to £90,000 from 1 April 2024. A business must register for VAT if its taxable turnover exceeds £90,000 in any rolling 12-month period, or if it expects to exceed this threshold in the next 30 days.
National Insurance Contributions (NICs)
National Insurance is one of the most frequently tested areas in employment law and business law modules. The employer NI rate increased significantly from April 2025, making this a hot topic for current exams.
| Class | Who Pays | Rate | Threshold |
|---|---|---|---|
| Class 1 (Employee) | Employees | 8% (£12,570 – £50,270), 2% above | Primary threshold: £12,570/year |
| Class 1 (Employer) | Employers | 15% | Secondary threshold: £5,000/year |
| Class 4 | Self-employed | 6% (£12,570 – £50,270), 2% above | Lower profits limit: £12,570 |
Key change for 2025-26: The employer NI rate increased from 13.8% to 15%, and the secondary threshold dropped from £9,100 to £5,000. This represents a significant increase in employment costs and is highly likely to appear in SQE1 Business Law questions.
Key Takeaway
Inheritance Tax (IHT)
IHT is charged on the estate of a deceased person and on certain lifetime transfers. It is one of the most complex areas of tax law and a staple of SQE1 Wills & Administration of Estates questions.
| Threshold / Rate | 2025-26 Figure |
|---|---|
| Nil-Rate Band (NRB) | £325,000 |
| Residence Nil-Rate Band (RNRB) | £175,000 |
| Combined (individual) | £500,000 |
| Combined (married couple/civil partners) | Up to £1,000,000 |
| Standard Rate | 40% |
| Reduced Rate (10%+ of estate to charity) | 36% |
Upcoming change: From April 2026, agricultural property relief and business property relief will be capped at £1 million for 100% relief, with 50% relief applying above that threshold. This is a major reform that will affect estate planning questions.
Exam tip: The RNRB is only available when the deceased's home is left to direct descendants (children, grandchildren). It is tapered for estates worth over £2 million, reducing by £1 for every £2 above that threshold.
Stamp Duty Land Tax (SDLT)
SDLT applies to the purchase of land and property in England and Northern Ireland. The rates changed significantly from 1 April 2025 when temporary COVID-era reliefs ended.
| Property Value Band | Rate |
|---|---|
| £0 – £125,000 | 0% |
| £125,001 – £250,000 | 2% |
| £250,001 – £925,000 | 5% |
| £925,001 – £1,500,000 | 10% |
| Over £1,500,000 | 12% |
First-time buyers: 0% on the first £300,000 (on properties up to £500,000). The relief threshold dropped from £425,000 to £300,000 from 1 April 2025.
Additional property surcharge: An extra 5% applies to purchases of additional residential properties (increased from 3% from October 2024). This includes buy-to-let properties and second homes.
Create Tax Law Flashcards
Generate flashcards covering all these tax rates and thresholds for quick revision before your exam.
Dividend Tax
Dividends received by individuals are taxed at special rates, lower than the equivalent income tax rates. The dividend allowance has been significantly reduced in recent years.
| Band | Rate |
|---|---|
| Dividend Allowance | £500 (tax-free) |
| Basic Rate | 8.75% |
| Higher Rate | 33.75% |
| Additional Rate | 39.35% |
The dividend allowance was £2,000 in 2022-23, reduced to £1,000 in 2023-24, and then to £500 from 2024-25 onwards. This progressive reduction is relevant to company law questions about the tax efficiency of salary versus dividends for owner-managed companies.
National Minimum Wage & National Living Wage
Employment law questions frequently test knowledge of minimum wage rates. The National Living Wage applies to workers aged 21 and over (previously 23 and over until April 2024).
| Age Group | Hourly Rate (from April 2025) |
|---|---|
| 21 and over (National Living Wage) | £12.21 |
| 18 – 20 | £10.00 |
| Under 18 | £7.55 |
| Apprentice | £7.55 |
From April 2026: The National Living Wage will increase to £12.71, the 18-20 rate to £10.85, and the under-18/apprentice rate to £8.00. If your exam is after April 2026, use the updated figures.
Key Legal Thresholds for Civil Procedure
These thresholds determine which court track a case is allocated to and are essential for SQE1 Dispute Resolution questions.
| Track / Threshold | Value |
|---|---|
| Small Claims Track | Up to £10,000 |
| Fast Track | £10,001 – £25,000 |
| Multi-Track | Over £25,000 |
| Personal Injury (small claims) | £1,000 (general damages) |
Employment Law Statutory Figures
These figures are tested in SQE1 employment law questions and are essential for calculating redundancy pay, sick pay, and maternity entitlements.
| Statutory Figure | 2025-26 Amount |
|---|---|
| Statutory Redundancy Pay (weekly cap) | £700 |
| Statutory Sick Pay (SSP) | £118.75/week |
| Statutory Maternity Pay (SMP) | £187.18/week (after first 6 weeks at 90%) |
| Statutory Paternity Pay | £187.18/week |
Pension & Savings Allowances
| Allowance | 2025-26 Amount |
|---|---|
| Pension Annual Allowance | £60,000 |
| Money Purchase Annual Allowance | £10,000 |
| Lifetime Allowance | Abolished from 6 April 2024 |
| ISA Annual Allowance | £20,000 |
| Lifetime ISA | £4,000 (within £20,000 ISA allowance) |
| Personal Savings Allowance (basic rate) | £1,000 |
| Personal Savings Allowance (higher rate) | £500 |
| Personal Savings Allowance (additional rate) | £0 |
Key point: The pension lifetime allowance was abolished from 6 April 2024. If an older textbook or past paper references the lifetime allowance (previously £1,073,100), note that it no longer applies. Examiners will expect you to know this.
Key Takeaway
How to Use This Page in Your Revision
This reference page is designed to complement your substantive law revision, not replace it. Understanding why these rates exist and how they interact is more important than memorising every number. That said, here are three practical ways to use this page:
1. Before answering problem questions: Check the relevant rates here before writing your answer. In an open-book exam, bookmark this page. In a closed-book exam, create flashcards from the tables above using our revision tips guide.
2. When reviewing past papers: If a past paper uses different figures, check whether the question specifies a tax year. If it does not, use the current rates. If it specifies an older year, note that the rates have changed and mention the current position in your answer for extra marks.
3. For SQE1 practice: Generate SQE1 practice questions on tax law topics using LexIQ. The AI uses these exact 2025-26 figures, so you will be practising with the correct rates from the start.
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Sources & Further Reading
All figures on this page are sourced from official HMRC and GOV.UK publications for the 2025-26 tax year. For the most authoritative and up-to-date information, consult the following:
- GOV.UK — Income Tax rates and Personal Allowances
- GOV.UK — Capital Gains Tax rates and allowances
- GOV.UK — Corporation Tax rates
- GOV.UK — VAT rates
- GOV.UK — National Insurance rates and categories
- GOV.UK — Inheritance Tax
- GOV.UK — Stamp Duty Land Tax rates
- GOV.UK — National Minimum Wage and National Living Wage rates
- GOV.UK — Rates and thresholds for employers 2025-26
This page is updated at the start of each new tax year. For related SQE preparation guides, see our articles on SQE1 subjects explained, how to pass SQE1, and building your SQE1 study plan.