How much tax do you pay in the UK on your personal income?

Understanding tax is essential for businesses and individuals due to its diverse impact. Compliance with tax regulations is a legal requirement and a basis for liable financial decisions.

Tax knowledge encourages individuals to wisely allocate resources, make informed financial choices, and manage risks effectively. In addition, it offers insights into the economic landscape, permitting citizens to understand government initiatives and fiscal measures.

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Find how much tax you can expect to pay on different kinds of income, like wages, savings and assets.

Table of content

Types of taxes in the UK on personal income

1. National Insurance

Every individual in the UK earning above a certain amount must pay income tax and National Insurance Contributions (NIC).

Making NIC mean you are eligible for certain state benefits, like the state pension, bereavement benefits and Employment Support Allowance.

You pay NIC to build up your right to social security, pension and benefits. NIC are automatically deducted from the salary or be estimated in your self-assessment tax return.

Certain benefits are linked to NICs paid by workers, such as statutory maternity pay, statutory sick pay, and employment support allowance. In contrast, other benefits are covered through public funds, like child benefits and housing allowance.

You must apply for a NIN (National Insurance Number) if you plan to apply for employment, claim benefits, or submit applications for student loans.

2. Income tax

The way that you pay income tax depends upon your employment status:

  • Employed

If employed, your employer will register you onto the PAYE (Pay As You Earn) system, meaning income tax and NIC will be calculated and deducted from your salary every month and will appear on your payslip.

You are not required to fill out any annual tax return forms and estimate the tax yourself unless your yearly income exceeds £100,000 for the tax year until 2023/24 or you have untaxed income to report.

There are various tax codes which depend on your yearly wage amount and any other benefits you may receive.

  • Self-employed

If you are self-employed with income over £1,000 or have earnings from property or other sources (for instance, foreign income), you must complete a self-assessment tax form.

UK income tax rates 2023/24

How much income tax you pay is dependent on what band you fall into. These are for the 2023–2024 tax year:

  • Personal Allowance: You are exempt from any tax on earnings up to £12,570.
  • Basic Rate: You are liable for 20% tax on anything you make between £12,570 and £50,270.
  • Higher Rate: You are responsible for 40% tax on anything you make between £50,271 and £125,140.
  • Additional Rate: Everything exceeding £125,140 will be subject to a 45% tax rate.

In practice, a basic rate taxpayer who makes £45,000 per year, will have to pay no tax on the first £12,570. The remaining £32,430 of their earnings will be taxed at 20%.

3. Inheritance tax (IHT)

Inheritance tax is due on your property if valued at more than £325,000 from 2023-24.

The main residence nil-rate band, which took effect on 6th April 2017, gives an additional allowance to those passing the family home to their kids.

This enables you to transfer £175,000 more in 2023–2024.

Civil partners and married couples can combine their allowances, potentially passing on £1 million.

If the value of your property exceeds the nil-rate band and/or the property’s nil-rate band, the amount over the limit is subject to tax at 40%.

Inheritance tax can also be due on some gifts (primarily to trusts) that you make during your lifetime, based on the overall value of your estate.

4. Capital gains tax

Capital gains tax is charged on the earnings you make on any property or investments you sell, or the rise in value from the date you acquired the items if you give them away, unless these are exempt.

For basic-rate taxpayers, capital gains are taxable at 10%. The rate increases to 20% for people who pay income tax at the 40% rate.

On gains made from the sale of real estate (second homes), higher rates will be imposed (18% for basic-rate taxpayers and 28% for higher-rate taxpayers).

You can make up to £6,000 in earnings from assets before paying CGT in 2023-24, decreased from £12,300 in 2022-23.

5. Dividend tax

Dividend tax is paid on income earned from shares you’ve purchased. This usually results from businesses sharing some of their profits with investors.

In 2023-24, you pay taxes on any dividend income exceeding £1,000. This decreased from £2,000 in 2022-23.

The amount you’re taxed is based on the usual tax on earnings you pay.

Basic-rate taxpayers are subject to 8.75%, while higher-rate taxpayers pay 33.75%, and additional-rate taxpayers have to pay 39.35%.

6. Council tax

Council tax is a local tax in the UK that is essential in funding vital local services. This tax is paid on residential properties; therefore, it is essential for residents to know how it works.

The amount of Council Tax you contribute is decided by the value of your real estate and the local council tax band it falls into. Properties are allocated to one of eight bands (A to H), with every band corresponding to a distinct valuation range.

A and B usually include properties with the lowest values, while G and H consist of higher-valued homes.

Local authorities utilise Council tax revenue to finance various services, including waste collection, education, local policing,  street cleaning, and social services.

Hire Tax Advisor

Work with a UK-based accountant for tax, accounting, payroll, & EIS/ SEIS needs.

Have a question? Call us on
0203 900 3500
Monday to Friday 9am – 5pm

Final thoughts

Comprehending the UK tax system is essential to people and companies alike. By grasping the different kinds of taxes, rates, and exemptions, individuals can make sound financial choices and ensure compliance with the law.

Keep up to date on tax bill regulations to maximise your financial approach and navigate the UK tax landscape efficiently.

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