Personal Income Tax in the UK

Personal Income Tax in the United Kingdom (UK) is an essential part of the country’s revenue system, ensuring the funding of public services and government operations. Below, you’ll find information on the tax rates and bands for the tax year 2023 to 2024.

Tax Rates and Bands for 2023 to 2024:

Personal Allowance: This is the income threshold up to which you pay no income tax.

  • Taxable Income: Up to £12,570
  • Tax Rate: 0%
Basic Rate:
  • Taxable Income: £12,571 to £50,270
  • Tax Rate: 20%
Higher Rate:
  • Taxable Income: £50,271 to £125,140
  • Tax Rate: 40%
Additional Rate:
  • Taxable Income: Over £125,140
  • Tax Rate: 45%

It’s important to note that the rates for dividends and savings interest in the UK are consistent across all bands and align with the rest of the UK.

Who Pays the Welsh Rates: If you live in Wales, you will pay the Welsh rates of income tax. Ensure that your address with HMRC is up-to-date, especially if your primary residence is in Wales, to ensure you are correctly assessed for Welsh rates.

Moving to or from Wales: If you move to or from Wales during a tax year (from 6 April to 5 April the following year), you will only pay the Welsh rates if you reside in Wales for the majority of the year. HMRC will adjust your tax automatically if you switch regions during the tax year. Remember to update your address with HMRC accordingly.

Multiple Residences: If you own homes in both Wales and another part of the UK, inform HMRC of your main residence. Your primary residence is typically where you spend most of your time, even if you rent or own it. Factors considered include where most of your possessions are, where your family resides (if applicable), and where you are registered for services like your bank account, GP, or car insurance. This is relevant for individuals who work away from their main residence, such as lorry drivers, offshore workers, or members of the armed forces.

How You Pay Welsh Rates: If you are employed, you’ll pay tax at the Welsh rates through the PAYE system. Your tax code will have a ‘C’ added to the beginning to ensure you are taxed at the correct rates. For pension recipients, your provider will deduct tax accordingly.

If you file a Self Assessment tax return online for the 2022 to 2023 tax year, there will be a specific box for indicating that you pay the Welsh rates.

Additionally, if you live in Scotland, you will pay Scottish Income Tax, which is administered by the Scottish Government and applies to your wages, pension, and most other taxable income. Here are the 2023 to 2024 Scottish Income Tax rates based on a standard Personal Allowance of £12,570:

Scottish Income Tax Rates for 2023 to 2024:

Personal Allowance: No income tax is applied.
  • Taxable Income: Up to £12,570
  • Tax Rate: 0%
Starter Rate:
  • Taxable Income: £12,571 to £14,732
  • Tax Rate: 19%
Basic Rate:
  • Taxable Income: £14,733 to £25,688
  • Tax Rate: 20%
Intermediate Rate:
  • Taxable Income: £25,689 to £43,662
  • Tax Rate: 21%
Higher Rate:
  • Taxable Income: £43,663 to £125,140
  • Tax Rate: 42%
Top Rate:
  • Taxable Income: Over £125,140
  • Tax Rate: 47%

These rates apply to Scottish residents, and you will pay the same tax as the rest of the UK on dividends and savings interest.

In the United Kingdom, personal income tax is levied at graduated rates, meaning that higher bands of income are subject to higher rates of taxation. This tax is applied to an individual’s total income, derived from all sources of earnings and investments, minus specific deductions and allowances. The key allowance is the personal allowance, which for the 2023/24 tax year is set at £12,570. Most individuals are eligible for this personal allowance, unless they are opting for the remittance basis or their income exceeds £125,140. The resulting figure, after considering these allowances, is commonly referred to as an individual’s taxable income. The graduated income tax rates slightly vary based on whether the income is earned from employment or investments.

Income Tax Bands and Rates for 2023/24:
  • Starting Rate for Savings: 0% (Applies to savings income only)
  • Income Range 2023/24: £0 to £5,000
  • Income Range 2022/23: £0 to £5,000
  • Note: The 0% starting rate is exclusively for savings income. If non-savings income exceeds this limit, the 0% starting rate will not be applicable.
Basic Rate: 20%
  • Income Range 2023/24: £0 to £37,700
  • Income Range 2022/23: £0 to £37,700
Higher Rate: 40%
  • Income Range 2023/24: £37,701 to £125,140
  • Income Range 2022/23: £37,701 to £150,000
Additional Rate: 45%
  • Income Range 2023/24: Over £125,140
  • Income Range 2022/23: Over £150,000

Please be aware that dividends are consistently treated as the top slice of income and are taxed at the individual’s highest marginal tax rate. A “savings income” is positioned as the next slice down, while other forms of income, such as earnings, constitute the lowest slice. Savings income commonly includes interest, but it also encompasses certain other income types.

For the 2023/24 tax year, there’s a dividend allowance for the initial £1,000 of an individual’s dividend income. This allowance functions as a 0% tax rate. However, starting from April 6, 2024, this allowance will be reduced to £500. Importantly, the dividend allowance does not reduce an individual’s total income for tax purposes. Any dividend income falling within this “allowance” still contributes to an individual’s basic and higher rate limits.

This document was prepared for informational purposes only. As local laws & regulations keeps on changing. Please consult your tax & legal advisors as well.
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