Personal Allowances (Excluding Scottish tax payers)
- Everyone is allowed to receive £12,500 of their income without paying tax.
- The personal allowance is reduced to zero for any person earning over £100,000 P/A, this applies at any age (this is reduced by £1 for every £2 over £100,000).
- Marriage allowance: A £1,250 transferable allowance is available to married couples and civil partners who are not in receipt of married couple’s allowance (born after April 1935). A spouse/civil partner who is a NTP can transfer 10% of their personal allowance (£1,250) to their BRT payer spouse or civil partner. The allowance will not apply if the partner is a HRT or ART payer. This must be applied for.
- Married couples allowance: Maximum allowance £907.50 to minimum allowance £351. Income is taxed at 10%. Must be married and one partner must have been born before April 1935. If the couple were married after 5th December 2005 the highest earner can claim. The allowance is progressively removed by £1 for every £2 over £31,200 until it falls to the minimum of £351.
- Blind persons allowance is an extra £2,500 on top of the basic allowance. It can be transferred to a 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 – £37,500 = 20% (Basic rate tax payer: BRT)
- £37,501 – £150,000 (£112,500) = 40% (Higher rate tax payer: HRT)
- £150,000+ = 45% (Additional rate tax payer: ART)
NTP BRT HRT ART
£0 ——– £12,500 —————£50K—————–———–150K————————————————-
0% 20% 40% 45%
Dividend tax rules
- Taxpayers with total dividend income of no more than £2,000 will pay no tax.
- Irrespective of the individual’s tax band, the first £2,000 of dividends will be tax free.
- Dividend income above £2,000 will be:
- 7.5% within the BRT (basic rate tax) band.
- 32.5% within the HRT (higher rate tax) band.
- 38.1% within the ART (additional rate tax) band.
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/rent exceeds £5,000.
HMRC Income tax: order of priority
- Non-savings income: Work, pensions in receipt and rent.
- Savings income: Savings/Fixed income/offshore bonds (qualifies for 0% savings rate on £5,000 after the P/A). Not available if non-savings income exceeds the P/A plus £5,000.
- Dividend income: Income from shares.
- Investment life policies: Chargeable gains made on certain life policies (i.e. Investment bonds).
- NTP: Non tax payer
- BRT: Basic rate tax payer
- HRT: Higher rate tax payer
- ART: Additional rate tax payer