Basic Guide to UK Income Tax
- colinslaby
- Jul 19, 2023
- 2 min read
Income Tax is collected by HMRC on behalf of the government. It’s used to help provide funding for public services. For example, the NHS, education and the welfare system, as well as investment in public projects, such as roads, rail and housing.
Income Tax is charged on most types of income. The most common way is on your wages and salary from work.
But you also need to pay Income Tax on:
profits, if you run a business
interest and dividends from savings and investments
rent you get if you’re a landlord.
You don’t usually pay Income Tax on all your taxable income. This is because most people qualify for one or more allowances.
An allowance is an amount of otherwise taxable income that you can earn each year, without paying tax on it.
What is the Personal Allowance?
Everyone, including students, has something called a Personal Allowance. This is the amount of money you’re allowed to earn each tax year before you start paying Income Tax.
For the 2023/24 tax year, the Personal Allowance is £12,570. If you earn less than this, you usually won’t have to pay any income tax.
Your Personal Allowance might be bigger if you claim Marriage Allowance or Blind Person’s Allowance. Or it might be smaller if you’re a high earner or if you owe tax from a previous tax year.
The Personal Allowance if you earn over £100,00
If you earn over £100,000, the figure of £12,570 will be reduced by £1 for every £2 earned over the £100,000 limit. If you earn £125,000, you pay Income Tax on everything and there’s no tax-free allowance.
If you earn above the Income threshold (£100,000), your Personal Allowance is reduced by £1 for every £2 you earn above it, until it reaches £0.
20% of the Marriage Allowance is given as a reduction in your tax bill. (This is unlike the Personal Allowance and Age Allowance, which are deducted from your taxable income before tax is worked out).
How much Income Tax will I pay?
Income Tax is made up of different bands. This means as your income increases, so does the amount of Income Tax you pay. The table below shows the rates of Income Tax depending on how much you earn.
Remember, you don’t pay Income Tax at the same rate on all your income. You only pay the rate of Income Tax on your income in the bracket.
For example, if you earn £52,000 a year, the Income Tax you’ll pay works out like this:
