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 5^th 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                      

                          (Next £37,500)

£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

1. Non-savings income: Work, pensions in receipt and rent.
2. 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.
3. Dividend income: Income from shares.
4. Investment life policies: Chargeable gains made on certain life policies (i.e. Investment bonds).

Abbreviations

• NTP: Non tax payer
• BRT: Basic rate tax payer
• HRT: Higher rate tax payer
• ART: Additional rate tax payer