UK Personnel Tax
- earnings from employment, including benefits in kind such as a company car
- earnings from self-employment
- most pensions income, including state, occupational and personal pensions
- some social security benefits
- interest on most savings
- income from shares (dividends)
- rental income
- income from a trust.
Income tax rates applies to the amount of income after deduction of the personnel allowance.
Income is taxed in a specific order with savings dividend income taxed last. There are 3 main bands, basic rate (BR), higher rate (HR) and additional rate (AR).
There is also a starting rate band (SBR) which is only applicable to saving income. The rate is not available is the taxable amount of non-saving income exceeds the starting band.
The table shows the tax rates you pay in each band if you have a standard Personal Allowance of £11,500.
|Band||Taxable income||Tax rate|
|Personal Allowance||Up to £11,500||0%|
|Basic rate||£11,501 to £45,000||20%|
|Higher rate||£45,001 to £150,000||40%|
|Additional rate||over £150,000||45%|
Scottish rates and bands for 2017/18
On the 21 February the Scottish Parliament voted to freeze the basic rate of income tax of 20 per cent, also freeze the higher and additional rates at 40 per cent and 45 per cent respectively, and maintain the higher rate of income tax threshold at £43,000 in 2017/18, as set out in the table below.
|Scottish income tax rates||Scottish bands|
|Scottish Basic rate||20%||Above £11,500* up to £43,000|
|Scottish Higher rate||40%||Above £43,000 up to £150,000|
|Scottish Additional Rate||45%||Above £150,000**|
The tax free allowance
If you work in the UK then you are allowed to make an amount of money before tax is payable, this is called the personnel allowance.
For the current tax yean the personnel allowance is £11,500, and it will be increased for the next tax year 2018-19 to £11,850.
Regardless of when you were born, everyone will have the same basic personnel allowance, however it will be reduced if you earn more than £100,000.
Your Personal Allowance goes down by £1 for every £2 that your adjusted net income is above £100,000. This means your allowance is zero if your income is £123,000 or above.
A married person born before 6 April 1935 may be entitled to a married couple’s allowance. This is not deducted from income but will be reduce the tax bill.
Marriage allowance 10% of the personnel allowance may be transferable between spouses where neither pays tax above the basic rate. This marriage allowance is not available to couples entitled to the married couple’s allowance.
Personnel saving allowance
From 6 April 2016, basic rate taxpayers are able to earn up to £1,000 in savings income (such as interest earned on bank or building society accounts) tax-free. Higher rate taxpayers are able to earn up to £500. This is called the Personal Savings Allowance.
Savings income includes:
- all interest, including from banks, building societies and
- other account providers, such as credit unions and peer
- to peer lending platforms
- interest distributions (but not dividend distributions) from
- authorised unit trusts, open-ended investment companies
- and investment trusts
- income from government or company bonds
- some types of purchased life annuity payments and gains
- from certain contracts for life insurance.
Under the new rules, only additional rate taxpayers and those with substantial amounts of savings income (more than £1,000 for basic rate taxpayers and more than £500 for higher rate) have tax to pay on their savings. This is about 5% of taxpayers (around one million people) and we will make it as easy as possible for them to pay the tax due.
For many of these savers the tax that they owe will be calculated and collected through either self-assessment returns or a simple adjustment to their tax code. We’ll be writing to those who don’t self-assess or pay tax through PAYE in the autumn setting out how we’ll support them.
Savings income which is already tax-free does not count towards an individual’s Personal Savings Allowance. The new allowance is in addition to existing tax reliefs and advantages — like ISAs (Individual Savings Accounts) and the 0% starting rate for savings (which is available to savers with lower earnings).