business & tax

Income Tax Rates 2012/13

Personal allowances - the amount you can earn with no tax to pay

• Age up to 65 - £8,105
  
• 65-74 yr olds - £10,500
  
• 75+ - £10,660
  
• Additional Blind Person's Allowance: £2,100
  

Tax Rates:

Income above the above mentioned 'tax free' income allowances is charged at the following rates:

Lower Rate 10% tax only applies to savings income. This applies to savings income over the personal allowance up to £2,710 subject to the following total income limit.

If your total taxable income including savings income is in excess of £2,710 then the 10% rate for savings income does not apply and all taxable income including savings income is taxed on the normal tax bands:

Basic Rate 20% tax on taxable income below £34,370. 

• How it works - if you have income below £42,475 (personal allowance £8,105 plus £34,370) tax is 20% on all income above £8,105.

Higher Rate 40% tax (40%) on taxable income in excess of £34,370

• How it works - if you have income above £42,475, zero tax on 1st £8,105, then 20% tax on next £34,370, then 40% on income above £42,475
• For every £2 earned over £100,000, personal allowance is reduced by £1. Meaning earners over £116,210 have no personal allowance. In which case, tax rates are: 0-£34,370 taxed at 20%, £34,371 - £150,000 taxed at 40%

Additional Rate 50% tax for taxable income in excess of £150,000 from 6 April 2010 (this decreases to 45% in 2013/14)

• For every £2 earned over £100,000, personal allowance is reduced by £1.  Meaning earners over £116,210 have no personal allowance.
• Therefore, 0-£34,370 taxed at 20%, £34,371 - £150,000 taxed at 40%, £150,001 + taxed at 50%
  

Tax Rates for Discretionary Trusts and Accumulation and Maintenance Trusts:

• Income from dividends (shares) - taxed at 42.5%
  
• All other income (savings and rental income) - taxed at 50%
  

Savings Income Tax Rates 2012/2013

• 10% tax for a lower rate tax payer, can reclaim excess if deducted at 20% provided all income inclsuing savings income is below the £2,710 limit
  
• 20% tax for a basic rate taxpayer
  
• 40% tax for a higher rate taxpayer
• Note - 50% tax for High Earners in excess of £150,000 from April 2010 (reducing to 45% 2013/14)