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What are the UK income tax brackets and what do they mean?

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Last editedMar 20222 min read

The UK uses a progressive tax system, which means that those who earn more must pay higher rates of tax accordingly. As a result, you can expect to pay tax on income received above your personal allowance. It’s important to understand the various tax rates, tax brackets, and personal allowances to figure out what you can expect to pay to HMRC each year. Keep reading to learn how income tax brackets work.

How is income tax determined?

Income tax is taken as a percentage of your individual or business income. If you are self-employed, you’ll need to file an annual Self Assessment return with your annual earnings. Employers file an annual income tax return for their employees. HMRC uses your income to determine the percentage of tax that is taken out, depending on which tax band you fall under.

What is a personal allowance?

There’s a certain threshold of earnings you must make before you’re responsible for paying income tax. Once you hit this threshold, called the personal allowance, you’ll then pay tax at the qualifying rate depending on current UK tax brackets. It’s important to note that the original personal allowance is still tax-free – you’ll only be taxed on income earned above this amount.

For the 2021-2022 tax year, the standard personal allowance is £12,570. However, those falling under higher tax brackets might see this amount reduced. If you earn more than £100,000, this threshold reduces by £1 for each £2 earned.

What are the UK tax brackets?

UK tax brackets are adjusted each year, so it’s important to make sure that you’re looking at the current bands. For the 2021/2022 tax year, here are the current brackets for taxpayers in England, Wales, and Northern Ireland:

Tax band

Taxable Income

Tax Rate

Personal allowance

£0 - £12,570

0%

Basic rate

£12,571 - £37,700

20%

Higher rate

£37,701 - £150,000

40%

Additional rate

Over £150,000

45%

The rates are slightly different for taxpayers in Scotland, with six income tax brackets rather than four. Here are the Scottish 2021/2022 tax brackets:

Tax band

Taxable Income

Tax Rate

Personal allowance

£0 - £12,570

0%

Starter rate

£12,571 - £14,667

19%

Basic rate

£14,550 - £27,393

20%

Intermediate rate

£27,394 - £43,662

21%

Higher rate

£43,663 - £150,000

41%

Top rate

Over £150,000

46%

What tax bracket am I in?

You can look at the tables above to determine your tax bracket. For example, taxpayers in England who earn £12,570 or less won’t pay any income tax. Basic rate taxpayers must pay 20% tax, and higher tax brackets include those earning more than £37,701. You’ll need to work out your taxable income first to find out which tax bracket you’re in.

How to calculate taxable income

To understand the answer to ‘what tax bracket am I in’ you’ll need to first determine your taxable income. You can do this in three easy steps:

  1. Add together all earned income. This should come from all sources, including income received from your employer, self-employed income, pension payments, rental income, and benefits.

  2. Deduct your personal allowance (£12,570) from the total amount of income for the year. This is the figure that you’ll need to pay tax on.

  3. Apply relevant deductions from your taxable income. There are many forms of tax relief, including things like gift tax, property and marriage allowances, and a trading allowance.

The final figure after deductions is called your non-savings income and is what HMRC will look at when determining your income tax bracket and rate.

How to reduce income tax

In addition to the personal allowance, taxpayers have tax-free allowances that might apply to:

  • Savings interest

  • Dividends

  • The first £1,000 of self-employed income (trading allowance)

  • The first £1,000 of rental income (property allowance)

  • Marriage allowance

On a final note, if you’re struggling to pay your income tax you should look into the government’s income tax reliefs. These could reduce your bills if eligible.

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