Yuliya Shved is a partner of LEXeFISCAL LLP, and an expert in International Tax Law, she is our resident Ask The Expert, and she's here today answering the question...
What are the income tax rates in the UK?
How much Income Tax is due in each tax year depends on:
the income above the Personal Allowance;
how much of the income falls within each tax band.
Some income is tax-free so there is no need to pay tax on it. For example, the standard tax-free Personal Allowance is £12,570. It may be bigger when you claim marriage allowance or blind person’s allowance or smaller if your income is over £100,000.
The table shows the tax rates for each band if a standard Personal Allowance of £12,570 applies.
BandTaxable incomeTax ratePersonal AllowanceUp to £12,5700%Basic rate£12,571 to £50,27020%Higher rate£50,271 to £150,00040%Additional rateover £150,00045%
There is no Personal Allowance on taxable income over £125,140. If all the requirements are met, you may also have tax-free allowances for:
your first £1,000 of income from self-employment (‘trading allowance’)
your first £1,000 of income from rented property
There are also additional tax-free allowances for:
dividends if you own shares in a company
Taxation of dividends. There is no tax on dividend income that falls within the Personal Allowance and you may also get a dividend allowance. So, the tax is only due on any dividends above the dividend allowance. In the tax year 6 April 2021 to 5 April 2022 the dividend allowance is £2,000.
How much tax is due on dividends above the dividend allowance also depends on the income tax band.
Tax bandCurrent tax rate on dividends over the allowanceTax rate on dividends over the allowance from April 2022Basic rate7.5%8.75%Higher rate32.5%33.75%Additional rate38.1%39.35%
To work out a tax band, it is necessary to add total dividend income to other income. It might happen that tax will be payable at more than one rate.
You get £4,000 in dividends and earn £39,570 in wages in the 2021 to 2022 tax year. So, the total income is £43,570.
Then it is necessary to take of a Personal Allowance of £12,570. This leaves a taxable income of £31,000.
This is in the basic rate tax band, so you would pay:
no tax on £12,570 of wages, because of the Personal Allowance
20% tax on £27,000 of wages
no tax on £2,000 of dividends, because of the dividend allowance
7.5% tax on £2,000 of dividends