Types of Tax
§Income Tax (Income, Dividends, Savings, Other) § National Insurance Contributions § Capital Gain Tax § Inheritance Tax § Stamp Duties (Land & Marketable Securities) § Council Tax
Income Tax rates and Personal Allowances
Current rates and allowances
How much Income Tax you pay in each tax year depends on:
- how much of your income is above your Personal Allowance
- how much of your income falls within each tax band
Some income is tax-free.
The current tax year is from 6 April 2020 to 5 April 2021.
Your tax-free Personal Allowance
The standard Personal Allowance is £12,500, which is the amount of income you do not have to pay tax on.
Your Personal Allowance may be bigger if you claim Marriage Allowance or Blind Person’s Allowance. It’s smaller if your income is over £100,000.
Income Tax rates and bands
The table shows the tax rates you pay in each band if you have a standard Personal Allowance of £12,500.
Income tax bands are different if you live in Scotland.
| 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% |
You can also see the rates and bands without the Personal Allowance. You do not get a Personal Allowance on taxable income over £125,000.
If you’re employed or get a pension
Check your Income Tax to see:
- your Personal Allowance and tax code
- how much tax you’ve paid in the current tax year
- how much you’re likely to pay for the rest of the year
Other allowances
You have tax-free allowances for:
- savings interest
- dividends, if you own shares in a company
You may also have tax-free allowances for:
- your first £1,000 of income from self-employment – this is your ‘trading allowance’
- your first £1,000 of income from property you rent (unless you’re using the Rent a Room Scheme)
Find out whether you’re eligible for the trading and property allowances.
You pay tax on any interest, dividends or income over your allowances.
Paying less Income Tax
You may be able to claim Income Tax reliefs if you’re eligible for them.
If you’re married or in a civil partnership
You may be able to claim Marriage Allowance to reduce your partner’s tax if your income is less than the standard Personal Allowance.
If you do not claim Marriage Allowance and you or your partner were born before 6 April 1935, you may be able to claim Married Couple’s Allowance.
Tax on savings interest
How much tax you pay
Most people can earn some interest from their savings without paying tax.
Your allowances for earning interest before you have to pay tax on it include:
- your Personal Allowance
- starting rate for savings
- Personal Savings Allowance
You get these allowances each tax year. How much you get depends on your other income. The tax year runs from 6 April to 5 April the following year.
Personal Allowance
You can use your Personal Allowance to earn interest tax-free if you have not used it up on your wages, pension or other income.
Starting rate for savings
You may also get up to £5,000 of interest and not have to pay tax on it. This is your starting rate for savings.
The more you earn from other income (for example your wages or pension), the less your starting rate for savings will be.
If your other income is £17,500 or more
You’re not eligible for the starting rate for savings if your other income is £17,500 or more.
If your other income is less than £17,500
Your starting rate for savings is a maximum of £5,000. Every £1 of other income above your Personal Allowance reduces your starting rate for savings by £1.
ExampleYou earn £16,000 of wages and get £200 interest on your savings.
Your Personal Allowance is £12,500. It’s used up by the first £12,500 of your wages.
The remaining £3,500 of your wages (£16,000 minus £12,500) reduces your starting rate for savings by £3,500.
Your remaining starting rate for savings is £1,500 (£5,000 minus £3,500). This means you will not have to pay tax on your £200 savings interest.
Personal Savings Allowance
You may also get up to £1,000 of interest and not have to pay tax on it, depending on which Income Tax band you’re in. This is your Personal Savings Allowance.
To work out your tax band, add all the interest you’ve received to your other income.
| Income Tax band | Personal Savings Allowance |
|---|---|
| Basic rate | £1,000 |
| Higher rate | £500 |
| Additional rate | £0 |
Interest covered by your allowance
Your allowance applies to interest from:
- bank and building society accounts
- savings and credit union accounts
- unit trusts, investment trusts and open-ended investment companies
- peer-to-peer lending
- trust funds
- payment protection insurance (PPI)
- government or company bonds
- life annuity payments
- some life insurance contracts
Savings in tax-free accounts like Individual Savings Accounts (ISAs) and some National Savings and Investments accounts do not count towards your allowance.
There are different rules for tax on foreign savings and children’s accounts.
Interest on joint accounts
If you have a joint account, interest will be split equally between the account holders. Contact the savings helpline if you think it should be split differently.
If you go over your allowance
You pay tax on any interest over your allowance at your usual rate of Income Tax.
If you’re employed or get a pension, HMRC will change your tax code so you pay the tax automatically. To decide your tax code, HMRC will estimate how much interest you’ll get in the current year by looking at how much you got the previous year.
If you complete a Self Assessment tax return, report any interest earned on savings there.
You need to register for Self Assessment if your income from savings and investments is over £10,000. Check if you need to send a tax return if you’re not sure.
If you’re not employed, do not get a pension or do not complete Self Assessment, your bank or building society will tell HMRC how much interest you received at the end of the year. HMRC will tell you if you need to pay tax and how to pay it.
If you already paid tax on your savings income
You can reclaim tax paid on your savings interest if it was below your allowance. You must reclaim your tax within 4 years of the end of the relevant tax year.
Fill in form R40 and send it to HMRC. It normally takes 6 weeks to get the tax back.