Income Tax Rates

The basic rate of income tax is 20%, while the higher rate is 40% and the additional rate is 45%.  These rates will not rise during this parliament.

There are special tax rates for interest income and dividends.

Individuals whose total income is less than £15,600 currently pay no tax on their interest income.   This is the personal allowance of £10,600, plus the 0% starting rate for interest of £5,000.

As previously announced in March, a new personal savings allowance is to be introduced with effect from 6 April 2016.  This will affect the tax rate for interest paid on bank and building society accounts which are not ISAs.

For people with income of under £43,000 in 2016/17, this will exempt the first £1,000 of interest income from tax.

People with total income of £17,000 or less in 2016/17 won’t have to pay any tax on their interest income, because the first £11,000 of their general income will fall within the personal allowance.  If the rest of their income is bank interest, £1,000 of this within the personal savings allowance and the next £5,000 will fall within the 0% starting rate for bank interest.

People with income of between £43,001 and £150,000 in 2016/17 will have a personal savings allowance on the first £500 of their bank interest.

The personal savings allowance and starting rate for tax on interest will only affect the tax rate on your interest income, not the tax on your other income.

From April 2016, banks and building societies will stop automatically deducting 20% income tax from interest on non-ISA accounts.

A new dividend tax allowance will be introduced from 2016/17.  The first £5,000 of dividend income will be taxed at 0%.  Additional dividends will be taxed at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.  As before, dividends will be treated as the “top slice” of an individual’s income for tax purposes.

Dividend tax credits will no longer apply, so dividends will not be “grossed up” and tax will be paid on the actual dividend received.

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Oct 21

No events today
The partners and I wanted to thank you again for your work this year on our behalf. We have found, since changing to your firm some time ago, that our lives have been made so much easier! We are very impressed and grateful for your attention to detail, your understanding of our practice and general practice in the whole, the sheer speed and helpfulness of your responses to our requests, questions and need for help. It really does make a difference to have a firm of accountants that understand general practice and the problems that we face, especially recently. We find the meetings with yourselves pleasant, easy to understand and easy to see where we can make improvements. I wish all GPs had accountants like yourselves! I am always happy to recommend to you friends and colleagues and would be more than happy for you to share this personal and practice recommendation with others.   Dr Andrew Dearden Roathwell Surgery (Senior Partner) and Treasurer of the British Medical Association (BMA)
-- Dr Andrew Dearden