What is a tax band?
Tax needn't be taxing. Read on and we'll get you up to speed with tax bands, your personal allowance and how marriage might affect your tax liability.
Key points
A tax band categorises income into specific ranges, each with a designated tax rate, ensuring higher earners pay more towards national services
Your personal allowance is the amount you can earn tax-free annually, with any income above this taxed according to the relevant tax band
Special circumstances, including marriage or disability, can alter your personal allowance, with provisions such as the Marriage Allowance and disability-related tax benefits available to reduce tax liability
What is a tax band?
A tax band categorises your income for specific tax rates. In the UK, your income tax depends on your annual earnings' tax band.
Each band has a unique tax rate. As your income rises, you may enter a higher tax band. This results in paying a greater percentage of your income in tax.
The system's design ensures that higher earners contribute more towards national services and infrastructure.
What income tax band am I in?
Determining your UK income tax band largely depends on your annual earnings. Here's how to identify your band:
Review your payslip: Your payslip displays your annual salary before tax, known as gross income
Check the latest tax rates: Visit the HM Revenue and Customs (HMRC) website for current tax bands. They update these annually
Match your income to the correct band: Compare your gross income against the HMRC site ranges to determine your band
Here are the income ranges for each tax band for the current tax year:
Personal Allowance: Up to £12,570 - no income tax
Basic rate: £12,571 to £50,270 - you pay 20% on income within this range
Higher rate: £50,271 to £150,000 - this bracket incurs a 40% tax rate
Additional rate: Over £150,000 - earnings above this are taxed at 45%
Understanding your tax band helps you grasp how much income goes to taxes. For example, earning £45,000 annually places you in the Basic rate band, incurring 20% tax on part of your earnings.
What is my personal allowance?
Your personal allowance is the amount you can earn each year before paying tax. For the current tax year, it is £12,570. This means you can earn up to this amount tax-free.
The relationship between your personal allowance and tax bands is key and determines how much tax you pay.
If your income exceeds your personal allowance, the excess is taxed. For example, income within the basic tax band incurs a 20% tax on the amount over your allowance.
Understanding these elements helps manage your finances and reduce tax liability
Will my personal allowance change if I'm married?
When you marry, it's not just your living situation that changes. It's your tax status, too. The Marriage Allowance lets you share part of your tax-free allowance with your lower-earning spouse or civil partner, and in so doing reduce your combined tax payment.
To qualify for the Marriage Allowance, one partner must earn less than the personal allowance, currently £12,570 for 2023/2024. The other partner must be a basic rate taxpayer, earning between £12,571 and £50,270.
Applying for the Marriage Allowance is simple and is simply a case of visiting the GOV.UK website to apply online. You will need both yours and your partners' National Insurance numbers and a form of ID for the non-taxpayer.
Once approved, the allowance applies for the entire tax year and continues automatically in subsequent years, unless circumstances change or you cancel it.
Will my personal allowance change if I have a disability?
If you have a disability, you might qualify for specific tax benefits. These can alter your personal tax allowances, aiding in effective tax management.
Tax benefits for disabled individuals: The UK tax system offers various benefits to support disabled individuals. These benefits can reduce your tax liability, increasing your disposable income
Specific allowances available: Special allowances like the Disability Living Allowance, Personal Independence Payment, and Employment and Support Allowance are available. These can affect your tax calculations and may increase your personal allowance
How to claim disability-related tax allowances: To claim these allowances, provide necessary documentation and evidence of your disability to HM Revenue and Customs (HMRC). Consulting a tax professional or using resources on the HMRC website is advisable to ensure you receive all benefits to which you may be entitled
Are there tax brackets for other types of tax?
Just like income tax, several other taxes in the UK have specific brackets. For example, Capital Gains Tax applies when you sell assets like shares or property.
The tax bands vary based on your total income. As your income increases, so does the tax percentage on your gains.
This system is similar to income tax bands. As your earnings or gains rise, the tax rate you face also increases. This tiered approach helps ensure that those with higher earnings pay more, promoting fairness.
Consider Inheritance Tax as well. It has different thresholds and rates based on the estate's value and the inheritor's relation to the deceased. Thus, tax brackets can greatly affect the amount beneficiaries need to pay.