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What are the Income Tax allowances and bands?

The following tax facts should be viewed as an indication of the rates and allowances available and relate to the current tax year (2020/2021) unless stated otherwise. Tax law is notoriously complex and we cannot replicate every rule, nuance or exemption here. Therefore you should not make, or refrain from making, any decisions based on this information alone. If you are in any doubt as to the suitable course of action we recommend you seek tax advice. Remember tax rules can change and depend on your personal circumstances.

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 - main personal allowances

Allowance 2020/21
Personal Allowance £12,500
Transferable tax allowance for married couples/civil partners £1,250
Personal Savings Allowance (PSA) £1,000 for Basic rate taxpayers
£500 for Higher rate taxpayers
Not available for Additional rate taxpayers
Dividend Allowance £2,000

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 maximum tax reduction available is £250

The personal allowance reduces by £1 for every £2 of income above £100,000. The personal allowance is lost if taxable income exceeds £125,000 (2020/21).

The dividend and personal savings allowance apply after the personal allowance. Anything within these allowances still count towards the basic and/or higher rate tax bands. The amount depends on the rest of the UK rates and not Scottish tax rates.

Income tax - bands

UK excluding Scotland

Rate Tax Band Income tax rate Dividend tax rate
Starter Rate for Savings £1 - £5,000 0% n/a
Basic Rate £1 - £37,500 20% 7.5%
Higher Rate £37,501 - £150,000 40% 32.5%
Additional Rate £150,000+ 45% 38.1%

Higher rate threshold (standard personal allowance + basic rate band) is £50,000.

Non-savings income uses up the starting rate for savings.

Scotland only

Scottish tax bands only apply to earned or pension income. They do not apply to savings or dividend income. Savings and dividend income tax rates and bands are the same as the rest of the UK.

Starter Rate for Savings (0%) £1 - £5,000
Starter Rate (19%) £1 - £2,085
Basic Rate (20%) £2,085 - £12,658
Intermediate Rate (21%) £12,658 - £30,930
Higher Rate (41%) £30,930 - £150,000
Additional Rate (46%) £150,000+

Higher rate threshold (Standard personal allowance + starter rate band + basic rate band + intermediate rate band) is £43,430.

Non-savings income uses up the starting rate for savings.

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