Tax Rates and Allowances
Tax allowances for 2020/21
|Married Couple's Allowance (MCA) (one or both born before 6th April 1935)||£9,075*|
|Blind Persons Allowance||£2,500*|
|Personal Savings Allowance basic rate||£1,000|
|Personal Savings Allowance higher rate||£500|
|Personal Savings Allowance 0% savings rate||£5,000|
*Note: Personal Allowance is reduced for those with total incomes over £100,000 by £1 for every £2 over this amount. This means Personal Allowance becomes zero at income of £125,000 or above.
*Note: Married couple's allowance (MCA) is restricted to 10% of the value and reduces tax due, not tax-free income. It is only available where at least one spouse is born before 6 April 1935. It is also withdrawn by £1 for every £2 of income if an income goes above the limit of £30,200 until it is reduced to the minimum level of £3,510 (i.e. where income exceeds £41,330).
*Note: Blind person's allowance can be claimed by those who are registered severely sight impaired (SSI) with a local authority. You do not have to be totally sightless to be registered blind. Eligibility rules are slightly different in Scotland. Any part of this allowance that is unused by the recipient can be transferred to their spouse or civil partner. If either spouses or civil partners are registered blind, they will both get the allowance but this allowance is not available to those who are registered as partially sighted.
Marriage Allowance: This allowance is available to married couples and civil partners where both parties are no more than basic rate tax payers and one party wants to transfer 10% of their personal allowance (£12,500) to the other. This is usually where there is unused allowance available because one is a non-taxpayer. It effectively reduces the recipient's tax bill by up to £250 for 2020/21 but can only reduce their tax bill to zero. If you claim the married couple's allowance above you cannot claim this one.
Personal Savings Allowance (PSA): This allowance means that £1,000 (basic rate tax payers) of your savings are not taxable (£500 for higher rate taxpayers, zero for additional rate). It is separate and additional to the starting rate for savings, for those eligible for both. They act together to mean that if you add up your total income, including savings interest, and it is below £18,500 you won’t have to pay tax on your savings.
Dividend Allowance: The first £2,000 of dividends will not be taxed. Any dividend payments over this amount will be taxed by reference to a person's marginal rate. To determine what your marginal rate is, add up all of your taxable income including saving income and dividends then check the table below to see which tax rate applies to you.
Tax rates and bands for 2020/21
|First £37,500 of taxable income*||20%*|
|£37,501 - £150,000*||40%*|
|Starting rate for interest falling in first £5,000 of income above Personal Allowance**||0%|
|Standard savings rate - higher rate taxpayers will have a further 20% to pay, additional rate tax payers a further 25%||20%|
|Dividend income above the allowance but falling within basic rate tax limit||7.5%|
|Dividend income falling between £50,001 and £150,000||32.5%|
|Dividend income falling above £150,000||38.1%|
|Inheritance tax Nil Rate Band (NRB)||£325,000|
|Residential Nil Rate Band (RNRB)||£175,000|
|Inheritance tax rate above NRB||40%|
|Capital Gains tax exemption - individual||£12,300|
|Capital Gains tax exemption - trust||£6,150|
|Capital Gains tax rate on excess gains up to basic rate limit||10%#|
|Capital Gains tax rate on excess gains above basic rate limit||20%#|
*In Scotland five tax bands apply for the 2020/21 tax year. The first £2,085 over the personal allowance of £12,500 is taxed at 19%, the next £10,572 at 20%, the next £18,271 at 21%, thereafter at 41% up to £150,000 and then 46% thereon.
**Only applies if your other (non-savings) income is below your allowances plus £5,000 for this tax year. Where non-savings income exceeds allowances the £5,000 is reduced, eventually being eliminated. Also consider the personal savings allowance mentioned above.
Note - Scottish tax payers should use the English rates and bands for their savings and investment income.
If you live in Wales, from 6th April 2019 you are potentially subject to Welsh income tax rates, set by the Welsh Government. For the 2020/21 tax year, they are the same as the main rates and allowances listed above, as for England and Northern Ireland.
From April 2016 banks and building societies no longer take tax at source from savings interest. If your total income ignoring dividends is within the starting rate for savings and/or the PSA then you have nothing to do. If it is higher you need to contact HMRC to make sure any tax due is collected.
#An 8% surcharge applies for carried interest and for gains from residential property.
Rent a Room - The allowance has increased to £7,500 from April 2016.
Marriage Allowance: allowing claims on behalf of deceased partners: The Marriage Allowance allows taxpayers to transfer up to 10% of their unused PA to their partner, reducing their tax bill by up to £250 a year in 2020/21. The government will allow claims in cases where a partner has died before the claim was made. These claims will be able to be backdated by up to 4 years
Property and trading income allowances: From April 2017 the government introduced a new £1,000 allowance for property income and a £1,000 allowance for trading income. Individuals with property income or trading income below £1,000 will no longer need to declare or pay tax on that income. Those with income above the allowance will be able to calculate their taxable profit either by deducting their expenses in the normal way or by simply deducting the relevant allowance. (Finance Bill 2017) (33)
Foreign pensions: From April 2017 foreign pensions will be more closely aligned with the UK's domestic pension tax regime by bringing foreign pensions and lump sums fully into tax for UK residents. From 2017/18 the rule where only 90% of foreign pension income is charged to Income tax was removed meaning that 100% of foreign pensions are now taxable
How tax is collected is changing: From April 2017 HMRC plan to collect as much tax as possible in the year it is due, where in the past it was often collected in the following year. This may mean that some people will have underpayments for earlier years and 2017-18 in their 2017-18 tax code. So, from April 2017 if your circumstances change for example, you start your state pension and there is tax to be collected, HMRC will try to collect it 'in year' by reducing your tax code. If this isn't possible because it reduces another income by more than 50% or it is too late in the tax year, they will reduce your tax code in the following year as well. For larger amounts or if it isn't possible to collect it through PAYE they will send you a 'notice to charge' which asks for payment. If you do not respond or pay by the 31st January after the end of the tax year you will be charged late payment penalties and interest. HMRC will still tot up at the end of the year and where there is an over or under payment will either repay you or tell you how to pay.
Simple Assessment: Simple Assessment is the way HMRC will collect PAYE underpayments (that can't be collected under PAYE) without putting a person into the self- assessment system. It came into force in 2017 for the 2016-17 for underpayments over £3,000 and will increase to include more people this year. Pensioners who only have their State Pension which is over their personal allowance will also come into this new system. The deadlines for payment, late payment penalties & interest are the same as for the self- assessment system.
Rental income: From April 2017 finance costs (including mortgage and loan interest for furnishings) on residential properties are being restricted to the basic rate tax. Landlords will instead receive a basic rate reduction from their income tax liability for their finance costs. In 2017-18 the deduction from property income will be restricted to 75% of finance costs, with the remaining 25% being available as a basic rate tax reduction. This is being restricted further each year until 2020-21 when all financing costs will be given as a basic rate tax reduction.
The Lifetime ISA (LISA): From 6 April 2017 any one over 18 and under 40 can open a Lifetime ISA. You can save up to £4,000 each year and will receive a 25% bonus from the government on every pound you put in. Contributions can continue to be made with the bonus paid up to the age of 50. Funds can be used to buy a first home with the government bonus at any time from 12 months after opening the account, and can be withdrawn from the Lifetime ISA with the government bonus from age 60 for use in retirement. If you withdraw from the ISA before you are 60 for any reason other than buying your first home you will be charged 25% of the amount withdrawn however recent announcements advise that this penalty has been cut to 20% until April 2021, which in effect is equivalent to the bonus being taken back
The government set the limit for property purchased using Lifetime ISA funds at £450,000. This limit will apply nationally.
Help to Buy ISAs closed to new applicants November 2019
Help to Save: The Help to Save scheme was launched to help low-income earners claiming universal credit or working tax credits to save. Recently many more have become eligible as their income's taken a hit due to coronavirus, so they're claiming universal credit for the first time. Help to Save pays a 50% bonus on the amount saved, up to a maximum bonus of £1,200 over four years. The bonus is paid after two years with an option to save for a further two years, meaning that people can save up to £2,400 and benefit from government bonuses worth up to £1,200. You can save between £1 and £50 per month, but you don't have to save every month. People are able to use the funds in any way they wish.
ISA contribution limit: You can save up to a maximum of £20,000 per year (for 2020/21), and this can be in a cash ISA - including a Help to Buy ISA - a stocks & shares ISA, an innovative finance ISA, a Lifetime ISA or a mixture of all of them.
If you are having problems with tax, call Tax Help on 01308 488066