Income tax explained Income tax bands: how much will you pay?
Tax is charged at different rates on taxable income within set bands. Although tax rates don’t change very frequently, the threshold for each band varies annually.
This guide explains the different tax bands and helps you calculate how much income tax you'll pay.
Tax band thresholds
- Basic rate tax is charged at 20% on taxable income (income which exceeds your personal allowance) up to £32,000
- Anything above this is taxed at the higher rate of 40%
- Taxable income above £150,000 will be taxed at the additional rate of 45%.
Tax on savings
Until 6 April 2016, 20% tax was deducted from savings interest at source. If you were a higher-rate taxpayer, you had a further 20% tax to pay on this and additional rate taxpayers paid a further 25%.
From April 2016 a new system incorporating personal savings allowance applies. Interest on savings is tax free, to a threshold of £1,000 for 20% taxpayers, and £500 for those who pay higher rate tax.
Tax will no longer be deducted by your bank or building society and all interest will be paid gross.
If the interest your receive from all sources exceeds the £1,000 limit (£500 for 40% taxpayers), any tax due will be collected through a self-assessment tax return or via an adjustment in your PAYE tax code.
The starting rate limit
From April 2015, a £5,000 tax-free (0%) savings income band has applied in addition to the £10,600 personal allowance. This remains in place for 2016-17.
To calculate if tax is due on your savings income, set any non-savings income against your personal allowance (for 2016-17 this is typically £11,000). If non-savings income exceeds your personal allowance, deduct the excess from the £5,000 savings income band to see how much of this you have left.
Set your savings income against the remainder of the band and a further tax-free £1,000/£500 of personal savings allowance. If all your savings income falls within this, you have no tax to pay on it. If your savings income exceeds what's left, only the amount within the band is tax-free, with any excess interest being taxable.
Find out more: Tax on savings - learn how savings interest and dividends are taxed
|Tax basics explained|
|Basic-rate income tax (20%)||£0-£31,785 (after allowances)||£0-£32,000 (after allowances)|
|Higher-rate income tax (40%)||Over £31,785||Over £32,000|
|Additional rate income tax (45%)||Over £150,000||Over £150,000|
|Personal allowance (tax-free)||£10,600 (unless income above £100,000)||£11,000 (unless income above £100,000)|
|Income limit above which you start to lose personal allowance (at rate of £1 for each £2 you earn above limit)||£100,000||£100,000|
|Age-related personal allowance (born before 6 April 1948 )||N/A||N/A|
|Age-related personal allowance (born before 6 April 1938)||£10,660||N/A|
|Lower earnings limit (above which you start to lose age-related allowance)||£27,700||N/A|
|Upper earnings limit (above which you receive no age-related allowance, just basic personal allowance)||£27,820||N/A|
|77+ Upper earnings limit (above which you receive no age-related allowance, just basic personal allowance)||£27,820||N/A|
|Married couple’s allowance (MCA) - born after 6 April 1935||N/A||N/A|
|Married couple’s allowance (MCA) - born before 6 April 1935 only||£8,355||£8,355|
|Blind person's allowance||£2,290||£2,290|
|Capital gains tax (CGT) threshold||£11,100||£11,100|
|Inheritance tax threshold (IHT)||£325,000||£325,000|
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