U.K. Income Tax Rates
Understanding the U.K. Income Tax Rates are essential for everyone in the U.K. It’s important to be aware of the current income tax rates and your personal tax allowance to ensure that you are paying the right amount of taxes.
This article will provide an overview of the U.K. Income Tax Rates and explain why they are important. We will also discuss how your personal tax allowance affects your overall income tax rate.
What are the current income tax rates?
Income tax rates are deductions made on your paycheck. Make sure you know the various rates.
There are three different rates of earned income in England, Wales & Northern Ireland):
● Basic rate (£12,571 to £50,270 taxed at 20%)
● Higher rate (£50,271 to £150,000 taxed at 40%)
● Additional rate (Over £150,000 taxed at 45%)
If you want to identify your tax band, first determine your personal allowance rate. The personal allowance is money you can have tax-free. Once you know your personal allowance rate, subtract this amount from your income to know your taxable income.
Why are tax rates important?
It’s good to know what tax bracket you’re in, as it helps you figure out how much income tax you have to pay. This will also help you manage your money better.
If your income increases, you may have to pay more taxes; if you earn less or your personal allowance increases, you may pay less.
What’s my personal tax allowance?
All of us are entitled to a personal allowance, which is tax-free income we can have. Any income above your personal allowance will be taxed at the relevant income tax bracket.
If you earn below £100,000, your personal allowance will be £12,570. If you make between £100,000 to £125,000, your personal allowance decreases from £12,570 by £1 for every £2 you earn above £100,000 until it’s £0.
Your personal allowance will be £0 if you earn over £125,000.
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What is my income tax band?
Once you’ve figured out your personal allowance, any extra income will be taxed. There are three marginal tax bands in England, Wales, and Northern Ireland in the 2022/23 tax year. The basic rate is at 20%, with the higher rate at 40% and the last rate at 45%. Your personal allowance will lower as your earnings reach £100,000.
Marginal tax bands mean you pay the set tax rate on a specific part of your income. For example, if you earn enough to be in the 40% tax bracket, then only that part of your salary is taxed at 40%. You still pay either 20% or 0% taxes at the lower end of your income.
In Scotland, there are five marginal income tax bands. The starter rate is 19%, the basic rate is 20%, the intermediate rate is 21%, the higher rate is 41%, and the additional rate is 46%.
Income tax bands and rates 2022/2023
The table below includes the different tax bands for England, Wales, and Northern Ireland.
|Taxable Income||Rate of Tax|
|£0 – £12,570||0%|
|£12,571 – £50,270 (basic rate)||20%|
|£50,271 – £150,000 (higher rate)||40%|
|Over 150,000 (additional rate)||45%|
Scottish Income tax bands and rates 2022/2023
The table below outlines the five different tax rates in Scotland.
|Taxable Income||Rate of Tax|
|£0 – £12,570||0%|
|£12,571 to £14,732||19%|
|£14,733 to £25,688||20%|
|£25,689 to £43,662||21%|
|£43,663 to £150,000||41%|
Is national insurance separate from income tax?
Apart from income tax, your national insurance will also affect your income. Most employees in the U.K. have to pay national insurance. This is deducted from each payslip.
National insurance will depend on your earnings and you’ll start paying them from the age of 16. Once you reach state pension age, you’ll stop paying national insurance.
What’s changing in 2022/23?
In the 2022/23 tax year, national insurance has been changed. Here’s a rundown of class 1 contributions (paid by employees):
6 April 2022 to 5 July 2022
- On income between £9,880 and £50,27, you paid 13.25% of national insurance
- On earnings above £50,270, you paid 3.25% of national insurance
6 July 2022 to 5 November 2022
- On income between £12,570 and £50,270, you paid 13.25% of national insurance
- On income above £50,270, you paid 3.25%
6 November 2022 to 5 April 2023
- On income between £12,570 and £50,270, you’ll pay 12% national insurance
- On income above £50,270, you’ll pay 2% national insurance
2022/23 Capital gains tax
You’ll likely have to pay capital gains tax if you sell or give away an asset valued at more than £6,000. Your main home and car are exempt from this – as well as lottery/pool winnings and a few other items.
You get an ‘annual exempt amount’ every year, which allows you to have some cash without paying any tax. You must declare anything over that and subject to capital gains tax.
● The annual exempt amount is £12,300 for individuals.
● The standard Capital Gains Tax rate is 18% on residential property and 10% on other assets
● The higher Capital Gains Tax rate is 28% on residential property and 20% on other assets.
After the completion of the sale of your property, you have 60 days to report and pay your capital gains tax to HM Revenue & Customs.
Dividend tax in 2022/23
There are two ways to make money from investing – when share prices go up, you can sell them and make a profit. The other route is collecting dividends from the investments you’ve made.
Dividends are similar to the interest you get for keeping your money in a savings account. If a company makes money, it can give some of it back to you either as a one-off or regular payment.
Tax-free dividends are £2,000 for the 2022/23 tax year, and the dividend tax rate remains unchanged.
If you earn dividends above the amount, you have to pay tax. If you hold your shares in a stocks and shares ISA, your dividends will always be tax-free.
But if your dividends exceed £2,000 per year outside of a stocks and shares ISA, you’ll need to notify HM Revenue & Customs.
What is my personal tax allowance if I’m married?
You might be able to use the marriage tax allowance if you and your partner were born on or after 6 April 1935. This allowance lets couples share parts of their personal allowance.
The marriage tax allowance is £1,260 in the 2022/23 tax year, meaning you could save £252.
If one of you was born before 6 April 1935, you might be eligible for a different married couple’s allowance. It’s also offered to civil partners.
Use the government’s married couple’s allowance calculator to determine how much you can receive.
What is a personal savings allowance?
The personal savings allowance means every basic-rate taxpayer can earn £1,000 tax-free annual interest. Higher-rate payers can have a £500 allowance, and anyone in the additional rate doesn’t have an allowance.
If you earn less than £12,570 per year, you can have £5,000 per year in savings interest tax-free.
How much National Insurance do I pay if I’m self-employed?
There are two forms of national insurance to pay when you’re self-employed. One is class 2 and another is class 4.
You make national insurance contributions on any profit you make. Subtract your expenses from your self-employment income to determine your profit. You can pay national insurance through self-assessment.
If your earnings are between £6,725 and £11,908 per year, you’ll get class 2 national insurance credits from 6 April 2022. Essentially, you’re treated as if you’ve paid class 2 national insurance when you haven’t.
What are my 2022/23 class 2 and 4 NICs as self-employed?
|Profits per year||Class 2 and 4 NIC Rate|
|Under £11,908||No national insurance needed|
|£11,908 to £50,270||9% + £3.15 per week|
9% on everything earned between £11,908 and £50,270.
2% on everything above that
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