Income tax allowances and bands

Please note it is taxable income which applies in this assessment, including earnings, pensions in payment, cash interest, fixed interest income, dividends and rent. ISA income is not included. Income tax is generally charged per band of taxable: the personal allowance at 0%, basic rate at 20%, higher rate tax at 40% and additional rate tax at 45%. The bands are below:

Those born 6 April 1938 or after

Income bands (2015/16) Income tax rate Dividend tax rate
Personal Allowance £1 – £10,600 0% 10%
Basic rate tax band (1) £10,601 – £42,385 20% 10%
Higher rate tax band (2) £42,386 – £150,000 40% 32.5%
Additional rate tax band Over £150,000 45% 37.5%
Income bands (2014/15) Income tax rate Dividend tax rate
Personal Allowance £1 – £10,000 0% 10%
Basic rate tax band (1) £10,000 – £41,865 20% 10%
Higher rate tax band (2) £41,866 – £150,000 40% 32.5%
Additional rate tax band Over £150,000 45% 37.5%

Those born before 6 April 1938

Income bands (2015/16) Income tax rate Dividend tax rate
Personal Allowance (4) £1 – £10,660 0% 10%
Basic rate tax band (1)(3) £10,661 – £42,445 20% 10%
Higher rate tax band (2) £42,446 – £150,000 40% 32.5%
Additional rate tax band Over £150,000 45% 37.5%
Income bands (2014/15) Income tax rate Dividend tax rate
Personal Allowance (4) £1 – £10,660 0% 10%
Basic rate tax band (1)(3) £10,661 – £42,525 20% 10%
Higher rate tax band (2) £42,526 – £150,000 40% 32.5%
Additional rate tax band Over £150,000 45% 37.5%

Important notes

  1. For savings income there is a 0% starting rate tax band of £5,000 above the personal allowance. However if your non-savings income is above this limit then the 0% starting rate for savings will not apply.
  2. For all ages, the personal allowance reduces where taxable income is above £100,000 – by £1 for every £2 of income above this limit, so that the personal allowance is lost once taxable income exceeds £121,200 (2015/16).
  3. For those born before 6 April 1938 the personal allowance reduces where the income is above £27,700 – by £1 for every £2 of income above this limit. This will not fall below the basic personal allowance of £10,600 (2015/16) until income exceeds £100,000 as per (2).
  4. Age related allowances only apply to those born before the 6 April 1938.

Transferable tax allowance for married couples/civil partners is £1,060 (Does not apply if one is a higher or additional rate taxpayer).

Accountants have a duty to advise clients to avoid tax

A recent High Court judgement that advisers must refer clients to avoidance schemes is a fundamental shift in how tax practitioners advise their clients, with Judge Justice Silber ruling practitioners have a duty to advise clients to avoid tax. Continue reading “Accountants have a duty to advise clients to avoid tax”

Tax return deadline warning from HMRC

Taxpayers who have missed tax returns from years past must admit to their absence on Tuesday or face larger fines, the UK tax authority has warned.

After 2 October, HM Revenue and Customs (HMRC) will use its legal powers to pursue those who have failed to submit self-assessment forms and have tax payments outstanding. Letters have been sent to those who have gaps in their returns records. The Tax Return Initiative is aimed primarily at higher-rate taxpayers. Fines will be reduced if taxpayers come forward with details by the end of Tuesday. Continue reading “Tax return deadline warning from HMRC”

New ISAs but 29% dont understand them

At the end of March a YouGov investigation (based on a survey of 2,070 people) found that 29% of UK adults have no understanding of how Individual Savings Accounts (ISAs) work and only 9% claimed to fully understand them. Introduced in 1999, ISAs are tax-free savings accounts. The amount that can be saved rises in line with the Retail Prices Index whose official figures are released each September.

There are two kinds of ISAs, cash and stocks and shares. The total amount of tax-free cash savings that can be claimed is currently £5,640; this is available to anyone over the age of 16. The overall subscription limit, which may include stocks and shares, is £11,280. However, only individuals aged 18 or over are eligible for stocks and shares ISAs, and these saving limits are connected to this particular tax year and cannot be carried over into 2013-2014. Continue reading “New ISAs but 29% dont understand them”