205 Ley Street, Ilford, Essex, IG1 4BL, UK
0208 1333 786
0208 9116 077

Income tax

Rates

Income tax applies to the amount of income after deduction of personal allowances.

Income is taxed in a specific order with savings and dividend income taxed last.

The dividend rate is partially satisfied by a 10% tax credit given on dividends. Therefore dividends falling within the basic rate band do not suffer any additional tax.

2015/16:

Type Band of taxable income (£) Rate (%) Dividend rate (%)
Starting rate for savings¹ 0 – 5,000 0 10
Basic rate 0 – 31,785 20 10
Higher rate 31,785 – 150,000 40 32.5
Additional rate Over 150,000 45 37.5

Important Note…
¹The starting rate band is only applicable to dividends and savings income. The 0% rate is not available if the taxable amount of non-savings income exceeds the starting rate band.

2014/15:
Type Band of taxable income (£) Rate (%) Dividend rate (%)
Starting rate for savings¹ 0 – 2,880 0 10
Basic rate 0 – 31,865 20 10
Higher rate 31,866 – 150,000 40 32.5
Additional rate Over 150,000 45 37.5

Important Note…
¹The starting rate band is only applicable to dividends and savings income. The 10% rate is not available if the taxable amount of non-savings income exceeds the starting rate band.

Allowances

A personal allowance gives an individual an annual amount of income free from income tax.

Income above the personal allowances is subject to income tax.

The personal allowance will be reduced if an individual’s ‘adjusted net income’ is above £100,000. The allowance is reduced by £1 for every £2 of income above £100,000.

An individual born before 6 April 1938 (1948 for 2014/15) may be entitled to an age related personal allowance but this is reduced if ‘adjusted net income’ is above the age allowance income limit (see table below).

For 2015/16 £1,060 of the personal allowance may be transferable between certain spouses where neither pays tax above the basic rate.

Personal Allowance

2015/16:
Age at end of tax year £
Born after 5 April 1938 10,600
Born before 6 April 1938¹ 10,660
Age allowance income limit 27,700

Important Note…
¹Reduce age allowance by £1 for every £2 of ‘adjusted net income’ over £27,700.

2014/15:
Age at end of tax year £
Born after 5 April 1948 10,000
Born after 5 April 1938 and before 6 April 1948 10,500
Born before 6 April 1938¹ 10,660

Important Note…
¹Reduce age allowance by £1 for every £2 of ‘adjusted net income’ over £27,000.

Blind person’s allowance

£2,290 (2013/14: £2,230)

Married couple’s allowance

Either partner born before 6th April 1935.

The amount of reduction for Married couple’s allowance depends on income of husband or, for marriages (or civil partnerships) after 4 December 2005, the income of the highest earner.

Reduction in tax bill 2015/16 (£) 2014/15 (£)
Maximum 835.50 816.50
Minimum 322.00 314.00

Important Note…
¹Reduce age allowance by £1 for every £2 of ‘adjusted net income’ over £27,000.

Blind person’s allowance

£2,290 (2013/14: £2,230)

Married couple’s allowance

Either partner born before 6th April 1935.

The amount of reduction for Married couple’s allowance depends on income of husband or, for marriages (or civil partnerships) after 4 December 2005, the income of the highest earner.

Professional Consultation

We help our clients determine the right strategic priorities to grow profitably and maximise value, and offer support and practical solutions to achieve these objectives. We are happy to provide no-obligation advice.