What are the income tax rates in the UK?

Updated: Feb 10

25 January 2022

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.

Band

Taxable income

Tax rates

Personal Allowance

Up to £12,570

0%

Basic rate

£12,571 to £50,270

20%

Higher rate

£50,271 to £150,000

40%

Additional rate

over £150,000

45%

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:

  • savings interest

  • 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 band

Current tax rate on dividends over the allowance

Tax rate on dividends over the allowance from April 2022

Basic rate

7.5%

8.75%

Higher rate

32.5%

33.75%

Additional rate

38.1%

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.


Example

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


For further information on any of the points above, please, contact

Yuliya Shved at: yuliya@lexefiscal.com or

Dr Clifford J Frank at: clifford.frank@lexefiscal.com




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