Income Tax Rates

It is a no-brainer that amount of income tax you pay for a financial year is dependent on your annual income, however in general , income tax is calculated based on two factors, namely:
  • How much you are earning above the allocated Personal Allowance: Personal allowance is nothing but the income on which you don’t have to pay any income tax. For the present financial year, the personal allowance is £12,500 and it is based on certain factors, for example if your annual income is above £100,000, then you are entitled for smaller personal allowance ; also your personal allowance will be more if you are claiming marriage allowance or blind person’s allowance.
Apart from personal allowances, there are other tax free allowances that allow you to save income tax, such as savings interest or dividends if you own shares in a company.
  • Your income falls under which tax band: For each tax band, you will be paying different income tax.

Income Tax Rates and Bands

Band Taxable Income Tax Rate
Personal Allowance Up to £12,500 0%
Basic Rate £12,501 to £50,000 20%
Higher Rate £50,001 to £150,000 40%
Additional Rate Over £150,000 45%

Personal Tax Allowance

Personal allowance is not constant and is always changing. For the year 2018-19 i.e. from 6th April 2018 to 5th April 2019, the standard Personal Allowance is £11,850 i.e. if your annual taxable income is £40,000 and you are entitled for standard personal allowance of £11,850, then you pay basic tax rate at 20% on (taxable income – standard personal allowance i.e. £40,000 - £11,850 = 28,150 )
Tax Rate Taxable Income above your Personal Allowance for the year 2018-19
Basic Rate 20% £0 to £34,500 If you have standard personal allowance, then you pay at the rate of 20% on the income over £11,850
Higher Rate 40% £34,501 to £150,000 If you have standard personal allowance then you pay at the rate of 40% on income over £46,351
Additional Rate 45% Over £150,000
As mentioned above, your personal allowance is smaller in size if your taxable income is over or above £100,000 i.e. for it reduces by £1 for every £2 above £100,000 and thus if your taxable income is equal to £125,000, then in this case your standard personal allowance becomes 0. If you are an employed person or getting pension, then you need to check your income tax to see your applicable personal allowance and how much tax you have paid in the current financial year and how much income tax you are expected to pay for the future financial year. Also, as it is mentioned above, there are various tax free allowances such as saving interest and dividends. Apart from these two, you are entitled to have tax-free allowances for the following:
  • Trading Allowance: For the first £1,000 of income from self-employment and for your first £1,000 of income from the rent of your property.
  • If you are married, then you can play a vital role in reducing your spouse’s tax, but only if your income is lesser than the standard personal allowance.