- Everyone is allowed to have £11,000 of their income without paying tax.
- The personal allowance is reduced to zero for any person earning over £100,000 per year, this applies at any age (this is reduced by £1 for every £2 over £100,000).
- Marriage allowance: £1,100 transferable allowance is available to married couples and civil partners who are not in receipt of married couple’s allowance. A spouse/civil partner who is a NTP can transfer 10% of their personal allowance (£1,100) to their BRT payer spouse or civil partner. Does not apply if partner a HRT or ART payer. This must be applied for.
- Married couples allowance: Maximum allowance £835.50 to minimum allowance £322. Must be married and one must have been born before 1935. If married after 5th December 2005 the highest earner can claim. Means tested.
- Blind persons allowance an extra £2,290 on top of the basic allowance. It can be transferred to spouse if unused
Certain deductions can be taken from income before the personal allowance is applied:
- Pension contributions (employed and self-employed)
- Allowable expenses:
- Self-employed: must be ‘wholly + exclusively for the purpose of trade’
- Employed: must be ‘wholly, exclusively + necessarily’ while doing the job.
After the personal allowance the next:
- £0 – £32,000 = 20% (Basic rate tax payer: BRT)
- £32,001 – £150,000 (£118,000) = 40% (Higher rate tax payer: HRT)
- £150,000+ = 45% (Additional rate tax payer: ART)
Personal Allowances (P/A)
NTP BRT HRT ART
£0 ⇒ £11,000 ⇒ ⇒ ⇒ £150K ⇒ ⇒ (over £150K)
0% 20% 40% 45%
New rules on dividends from 2016
- From April 2016, taxpayers with total dividend income of no more than £5K will pay no tax
- Dividends received by an investor will be tax free up to £5K after the personal allowance
- Irrespective of the individuals tax band, the first £5K of diviends will always be tax free.
- Dividend income above £5K will be:
- 7.5% within the basic rate band
- 32.5% within the higher rate band
- 38.1% in the additional rate band.
Tax on Dividends
NTP BRT HRT ART
(First £5K on dividends)
£0 ⇒ £11,000 ⇒ ⇒ ⇒ ⇒ £150K ⇒ ⇒ ⇒ (over £150K)
0% 0% 7.5% 32.5% 38.1%
HMRC Income tax: order of priority
- Non-savings income: Work, pensions in receipt
- Savings income: Savings/FI/Rental income (only savings/FI qualifies for 0% savings rate on £5,000 after the P/A). Not available if non-savings income exceeds the p/a plus £5K
- Dividend income: Income from shares
- Investment life policies: Chargeable gains made on certain life policies (i.e. Endowments)
Investment Income: The starting rate of 0% only applies to savings and fixed income (FI) up to £5,000 after the personal allowance. Does not apply if taxable income from work/pensions exceeds £5K
- NTP: Non tax payer
- BRT: Basic rate tax payer
- HRT: Higher rate tax payer
- ART: Additional rate tax payer