Category Archives: Tax Rates

Autumn Statement, Tax Allowances, Tax Rates

Jeremy Hunt Reverses Tax Changes

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In the current political turmoil there were always going to be more changes coming after the mini budget and the sacking of ex-Chancellor Kwasi Kwarteng last week.

With Jeremy Hunt’s appointment as the new Chancellor it seemed imperative to make some changes that settled the financial markets and these came swiftly after his appointment, instead of on 31st October as previously promised.

The main change that affects the information that this website provides is the reversal of the 1% drop in the lower rate of income tax that was due to come into effect in April next year.

The lower rate was due to drop from 20% to 19% for earnings over the personal allowance of £12,570 and below £50,270, but this has now been scrapped and the lower rate will remain at 20% for the foreseeable future.

The scrapping of the higher rate of 45% had already been almost immediately reversed and so that will also now stay the same as before.

The scrapping of the increase in National Insurance payments does remain however so that is one thing left from the mini budget.

We will be keeping a check on any further announcements to see if more tax changes are in store.

National Insurance, Spring Statement, Tax Rates

Taxation Changes in 2022 Spring Statement

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Rishi Sunak has just announced in his spring statement that there will be an increase to the National Insurance threshold with effect from July so that people will now only pay NI on earnings over £12,570. This brings the NI threshold into line with the level at which people start to pay tax.

He has also announced that from 2024 the lower rate of income tax, which now stands at 20%, will be decreased by 1 pence in the pound to 19p.

More to follow on this.

High Earners, Paying Tax, Tax Rates

How Much do I Need to Earn to Pay 40% Tax?

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How much do I need to earn to pay 40% tax?Currently the higher rate of tax for those who earn a certain amount stands at 40%. So you may wonder how much do I need to earn to pay 40% tax?

Tax Code

The way to work out this is to firstly take a note of your tax code which will dictate how much personal allowance you have for that tax year. For the year 2018/19 the standard personal allowance is £11,850 which will give you a tax code of 1185L.

If you don’t have that tax code then you need to take the tax code you have and multiply it by 10 to give you your personal allowance.

20% Tax Band

Next add on to that figure the amount that you can earn on which you pay 20% tax. You can see the current rates for the relevant tax years here, but for 2018/19 the 20% tax band amounts to £34,500.

So you add your personal allowance (let’s say you get the full rate of £11,850) to the 20% tax band (£34,500) and you get a total figure of £46,350.

This means that once your earnings are over £46,350 for the tax year (in this example 2018/19) then you will start paying tax on those earnings at the rate of 40%.

Note that you only pay tax at 40% on earning over that figure, not on the whole amount.

Additional Tax Rate

In addition to that there is a 45% tax rate on earnings over £150,000 (at which point you don’t get a personal allowance) so that would be the point at which you would start paying tax at what is know as the additional rate.

Obviously everyone’s circumstances are different and you should also take account of other benefits in kind and additional earnings.

This is just to give you a guide number of when to think about your entry into a higher tax bracket and what that could mean to you.

It may be worth speaking to a financial adviser to get any advice you need to take account of this additional tax rate.

Tax Allowances, Tax Rates

What is the 40% Tax Limit in 2016?

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What salary do I have to earn to get caught by 40% tax?

Generally each year the amount that you can earn before having to pay higher rate tax (which is currently charged at the rate of 40%) is increased by the government and 2016/17 is no different.

In 2015/16 there was a personal allowance of £10,600 and an allowance of £31,785 which was charged at the basic rate of 20% so in effect you could earn £42,385 before you fell into the 40% tax bracket.

In 2016/17 both the personal allowance and the 20% tax band have been increased to £11,000 and £32,000 respectively so that (assuming you are entitled to the full personal allowance), you could earn up to £43,000 before having to pay any tax at 40%.

Of course it is possible that you may have a different personal allowance or you may have to take into account other earnings or benefits in kind that may take you over the threshold.

However, one benefit in 2016/17 is that you now have a personal savings allowance of £1,000 if you are in the lower rate tax bracket or £500 if you are in the higher rate tax bracket so you will not need to pay tax on savings interest under this amount.

The increase from £42,385 to £43,000 is effectively a 1.45% increase so it is quite possible that if you were close to the threshold in 2015/16 and you have had an increase in your income, that you may now get caught in the 40% tax bracket.

Tax Allowances, Tax Rates, UK Budget

New Dividend Tax Introduced in 2015 Budget

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In recent years there have been a lot of changes to personal allowances and indeed other allowances that affect personal income.  Not only has the personal allowance increased significantly and more recently a tax free savings allowance was introduced, now there is another change to the tax charged on dividend payments to individuals.

The changes are a little bit complex and will affect quite a lot of people receiving dividend income, and not always for the better.

There is a new allowance of £5,000 per person per year on dividends which is tax free, but any dividend income over this amount will be taxed at a higher rate than previously, depending on the tax bracket of the individual.

A basic rate tax payer will need to pay 7.5% tax on amounts over £5,000, a higher rate tax payer will need to pay 32.5% and an additional rate tax payer will need to pay 38.1%.

These rates are effective from April 1016.

It may be useful to note that the new £5,000 savings tax free rate is in addition to this (for those who have low enough incomes) and so it may be worth getting some advice as to whether some shares should be switched to a different investment vehicle to minimise tax.

Tax Rates, UK Budget

40% Tax Band Increased for 2016/17

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The chancellor George Osborne this week announced in his extra budget that the figure at which the 40% tax band kicks in will be increased from 2016 to £43,000 from the current level for 2015/16 of £42,385.

The 2015/16 figure of £42,385 is made up of the £10,600 personal allowance and the 20% tax band amount of £31,785.

Next year’s figure is made up of the new £11,000 personal allowance and a 20% tax band amount of £32,000.

Whilst the personal allowance had been increasing, the 20% tax band allowance had been decreasing in recent years so this is the first increase for a while which brings it back up to the level it was in 2013/14.

Tax Allowances, Tax Rates

£100k Tax Trap

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There is a point when you get to earning £100,000 a year where the personal allowance becomes a bit more complicated as the allowance is withdrawn gradually on earnings over this level. Some people refer to this as the £100k tax trap.

Basically the personal allowance is reduced by £1 for every £2 of earnings over £100,000. This means that one your earnings reach twice as much as the personal allowance, plus £100,000, you will no longer be entitled to any personal allowance and all of your earnings will be taxable.

Therefore your personal allowance and tax bands would be as follows, depending on your earnings:

For 2015/16

Earnings Personal Allowance 20% Band 40% Band Total Tax
£100,000 £10,600 £10,600-£42,385 £42,386-£100,000 £29,403
£102,000 £9,600 £9,600-£41,385 £41,386-£102,000 £30,603
£104,000 £8,600 £8,600-£40,385 £40,386-£104,000 £31,803
£106,000 £7,600 £7,600-£39,385 £39,386-£106,000 £33,003
£108,000 £6,600 £6,600-£38,385 £38,386-£108,000 £34,203
£110,000 £5,600 £5,600-£37,385 £37,386-£110,000 £35,403
£112,000 £4,600 £4,600-£36,385 £36,386-£112,000 £36,603
£114,000 £3,600 £3,600-£35,385 £35,386-£114,000 £37,803
£116,000 £2,600 £2,600-£34,385 £34,386-£116,000 £39,003
£118,000 £1,600 £1,600-£33,385 £33,386-£118,000 £40,203
£120,000 £600 £600-£32,385 £32,386-£120,000 £41,403
£121,200 £0 £0-£31,785 £31,786-£121,200 £42,123

Please note that these figures are purely theoretical and may not apply to your own personal tax circumstances as there may be other factors affecting your personal allowances and taxable income. This is just intended as a basic guide to illustrate how the personal allowance decreases after your earnings exceed £100,000.

Please take financial advice if you are in any doubt about your own personal tax circumstances.

E&OE

Tax Rates, UK Budget

Tax Changes in the 2013 Budget

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A number of changes were announced by the Chancellor George Osborn yesterday, but there were only a couple of changes that affected UK tax allowances.

Key Points from the UK Budget 2013 with regard to UK Tax Allowances:

The plan was always to increase the personal allowance to £10,000 by 2015 but this has now been brought forward by a year and the £10,000 UK tax allowance will now be effective from 6 April 2014. This is the amount that people can earn before being charged any income tax. However, National Insurance contributions are still payable on earnings over £7,606 at the rate of 12%.

Corporation tax will decrease from April 2015 to 20% from the previous rate of 21%, which in itself is payable from April 2014. In fact the rate has been reduced significantly from the 28% it is in 2012/13 to 24% in 2013/14, giving the UK one of the lowest rates of corporation tax.