Guide to saving tax
With these tax-saving tips you can hand over less of your profit and income to the taxman
Please note it is taxable income which applies in this assessment, including earnings, pensions in payment, cash interest, fixed interest income, dividends and rent. ISA income is not included. Income tax is generally charged per band of taxable income: the personal allowance at 0%, basic rate at 20%, higher rate tax at 40% and additional rate tax at 45%. The bands are below:
|Income bands (2015/16)||Income tax rate||Dividend tax rate |
|Personal Allowance||£1 - £10,600||0%||10%|
|Basic rate tax band (1)||£10,601 - £42,385||20%||10%|
|Higher rate tax band (2)||£42,386 - £150,000||40%||32.5%|
|Additional rate tax band||Over £150,000 ||45%||37.5%|
|Income bands (2016/17)||Income tax rate||Dividend tax rate (3) |
|Personal Allowance||£1 - £11,000||0%||0%|
|Basic rate tax band (1)||£11,000 - £43,000||20%||7.5%|
|Higher rate tax band (2)||£43,000 - £150,000||40%||32.5%|
|Additional rate tax band||Over £150,000 ||45%||38.1%|
(1) For savings income there is a 0% starting rate tax band of £5,000 above the personal allowance. However if your non-savings income is above this limit then the 0% starting rate for savings will not apply.
(2) For all ages, the personal allowance reduces where taxable income is above £100,000 - by £1 for every £2 of income above this limit, so that the personal allowance is lost once taxable income exceeds £121,200 (2015/16), £122,000 (2016/17).
(3) The Dividend Allowance provides that the first £5,000 of dividend income is tax free. Excess over this allowance is taxed as shown.
Transferable tax allowance for married couples/civil partners is £1,060 (Does not apply if one is a higher or additional rate taxpayer).
|Transferable tax allowance for married couples/civil partners||£1,100|
|Personal Savings Allowance (PSA)||
£1,000 for Basic rate taxpayers
£500 for Higher rate taxpayers
Not available for Additional rate taxpayers
A Married Couple’s allowance (born pre 6/4/35) or Blind Person’s allowance may also apply.
The transferrable tax allowance only applies where neither individual is a higher or additional rate tax payer.
The personal allowance reduces by £1 for every £2 of income above £100,000.
The dividend allowance applies after the personal allowance. Dividends within the dividend allowance still count towards the basic and/or higher rate tax bands.
The Personal Savings Allowance and Dividend Allowance is disregarded when determining whether an individual is a Basic, Higher or Additional rate taxpayer for the purpose of eligibility for the Personal Savings Allowance.
|Starting rate for savings only||£0 - £5,000|
|Basic rate||£0 - £32,000|
|Higher rate||£32,001 - £150,000|
|Higher rate threshold (Standard personal allowance + basic rate band)||£43,000|
Non-savings income uses up the starting rate for savings.Find out how you could save tax with this year's ISA and make more of your existing ISAs.
Charged when you buy shares that settle via electronic paperless systems.
|Shares||0.5% charge rounded up to the nearest penny|
Charged when you buy shares that settle via a paper system.
|Shares||Less than £1,000||0%|
|Greater than £1,000||0.5% charge rounded up to £5|
Charged when you buy residential land or property.
|Purchase price or value||
Tax rate paid on portion of purchase price
||Tax rate paid on second and subsequent houses|
|Up to £125,000||0%||3%|
|£125,001 to £250,000||2%||5%|
|£250,001 to £925,000||5%||8%|
|£925,001 to £1,500,000||10%||13%|
|Income tax rate (above £1,000 per annum)||
|Capital gains tax allowance||£5,550|
|Capital gains tax rate||20%|
|Inheritance tax (transfers into discretionary trusts)||20%|
|Dividend tax rate (up to £1,000 per annum)||7.5%|
|Dividend tax rate (above £1,000 per annum)||38.1%|
Historically the State Pension age was 60 for women and 65 for men. This is changing.By November 2018 the State Pension age for women will have increased to 65. By October 2020 it will have increased to 66 for both men and women.
The State Pension age is due to increase to 67 between 2026 and 2028 and to 68 between 2044 and 2046, however the government is considering bringing these increases forward.
|Maximum||£119.30 per week|
In addition, there may be entitlement to earnings related State Second Pension (S2P) formerly State Earnings Related Pension Scheme (SERPS).
You need 30 qualifying years for a full basic State Pension. A qualifying year is one where either sufficient national insurance has been paid (on earnings above a lower limit of £5,824 for this tax year) or deemed to have been paid.
|Maximum||£155.56 per week|
This figure will be reduced for those who have contracted out of the State Second Pension (S2P), formerly State Earnings Related Pension Scheme (SERPS), before 6 April 2016.
35 qualifying years are needed for a full basic State Pension. A qualifying year is one where either sufficient national insurance has been paid (on earnings above a lower limit of £5,824 for this tax year) or deemed to have been paid.
Transitional rules apply for those who accrued State Pension before 6 April 2016.
|Tax status||Tax relief 2015/16*||Net cost of £1,000 gross contribution 2015/16||Tax relief 2016/17*||Net cost of £1,000 gross contribution 2016/17|
|Non-taxpayer (including children)||20%||£800||20%||£800|
|Basic rate taxpayer||20%||£800||20%||£800|
|Higher rate taxpayer||40%||£600*||40%||£600*|
|Additional rate taxpayer||45%||£550*||45%||£550*|
* Higher/additional rate tax relief is restricted to the amount of higher/additional rate tax paid. This assumes no other taxable income.
|Relevant UK earnings (usually earnings from employment or self-employment)||Maximum personal or employee contribution for tax relief|
|£0 - £3,600||£3,600|
|£3,601 and over||100% of earnings|
Annual allowance: £40,000. A £10,000 money purchase annual allowance will apply for those who have flexibly accessed their pensions.
Tapered annual allowance: If your threshold income is over £110,000 then your annual allowance will be reduced by £1 for every £2 that your adjusted income is over £150,000; to a minimum annual allowance of £10,000.
Threshold income is, broadly, all taxable income plus salary sacrificed for pension contributions on or after 9 July 2015 minus personal or employee (not via salary sacrifice) pension contributions.
Adjusted income is, broadly, all taxable income plus employer pension contributions (including via salary sacrifice) plus some benefit accrual in defined benefit, e.g. final salary, pension schemes.
Please see our annual allowance factsheet.
Lifetime allowance: £1,000,000. If the value of pension rights exceeds the lifetime allowance on death, at retirement or at age 75, the excess could be taxed at up to 55%.Our straightforward guide gives you a run-down on SIPPs and why they are transforming the way people are saving for retirement.
Attendance allowance is paid weekly. The amount paid depends on the help you need.
|2015/16 and 2016/17|
|Earnings per week||Employee rate|
|£0 to £155||Nil|
|£156 to £827||12%|
|£827 and over||2%|
|Earnings per week||Employer rate|
|£0 to £156||Nil|
|£157 and over||13.8%|
National Insurance applies to most earned income or benefits in kind. National Insurance rates may be different for certain employees, e.g. if employee is over the State Pension age. No National Insurance paid by employers up to £827 for employees under 21 or apprentices under 25.
|Type of National Insurance contribution||Tax rate 2016/17|
|Class 2 self employed||£2.80 per week|
|Class 2 small profits threshold||£5,965 per annum|
|Class 3 voluntary||£14.10 per week|
|Class 4 lower profits limit||£8,060 per annum|
|Class 4 upper profits limit||£43,000 per year|
|Class 4 rate between lower profits limit and upper profits limit||9%|
|Class 4 rate above upper profits limit||2%|