Your Income Tax
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Your main source of income is likely to come from employment but, for the sake of tax, the government also class other earnings as income. Interest from saving accounts, dividends from shares, rental income, pension (if you're over 55), all count too. You can find the full list here.
The good news?
On many of these other forms of income, the government offer a yearly tax free allowance:
Interest from saving accounts... A Personal Saving Allowance allows you to earn between £500 to £1,000 interest tax-free (as long as you're not an additional-rate tax payer). Plus, if you're a low-earner there's a larger amount of relief up for grabs. Get the low-down here.
Dividends from shares... You don't pay tax on the first £2,000. After that, the tax depends on your total dividend income. We have a guide for this.
Rental income... The Rent a Room scheme allows you to earn up to £7,500 tax-free for letting out a room in your home. Yes, you have to be living there as well.
Pension income... You get 25% tax-free, taken as a lump sum or over time. After that your withdrawals count as income and are taxed.
How much will I pay?
After you've totted up your total income (including your salary) and deducted the tax-free allowances, you'll have to pay tax on income over £11,850. Here's the deal:
|Your Income||Band Name||Tax Rate|
|Up to £11,850||Personal Allowance*||0%|
|£11,851 to £46,350||Basic rate||20%|
|£46,351 to £150,000||Higher rate||40%|
|Over £150,000||Additional rate||45%|
*If you earn over £123,000 a year you don't get a Personal Allowance and all your income is taxed.