Personal UK Tax Rates And Personal Allowances For 21/22 And 20/21 Tax year

What Are The Current UK Tax Rates And Personal Allowances?

Learn more about personal UK tax rates and personal allowances including dividend tax and capital gains tax for the 2021/22 and 2020/21 tax year.

UK tax rates are set by HMRC for each financial year, these are the tax rates individuals in the UK – whether as an employee, self-employed or individual – have to pay on income received, as well as the allowances they may be eligible for. Here we’ll discuss these in relation to the 2021/2022 and 2020/2021 tax year.

If you would like to discuss your individual situation further please contact us for a free consultation.

Personal Allowance

The Personal Allowance is the amount of income a person can earn in a tax year before they have to pay tax. The Personal Allowance set by HMRC for the 21/22 tax year is £12,570.

The income limit for the full Personal Allowance is £100,000. This means that for every £2 of income above the £100,000 limit, the Personal Allowance goes down by £1. So if you earned over £125,000 in the 21/22 tax year, you wouldn’t receive any personal allowance.

Your personal allowance may be bigger if you also claim Marriage Allowance or Blind Person’s Allowance

Marriage Allowance

The marriage allowance allows you to transfer up to £1,260 of your Personal Allowance to your husband, wife or civil partner if one partner is earning under the Personal Allowance threshold of £12,570. This can result in a saving for the couple of up to £252 a year.

Marriage Allowance is not to be confused with Married Couple’s Allowance, which requires one partner to be born before 6 April 1935 for eligibility.

Blind Person’s Allowance

If eligible, Blind Person’s Allowance can be added to your yearly tax-free Personal Allowance. Blind Person’s Allowance can also be transferred to a spouse or civil partner if earnings are not high enough to use all of the allowance.

UK tax rates, income tax bands and tax thresholds

There are three marginal tax bands in the UK: basic rate at 20%; higher rate at 40%; and the additional rate at 45%.

As your income rises and you move through the tax bands, so does the amount you are taxed. However, marginal bands mean you only pay the tax rate on the income that’s relevant to that tax band.

For example, if your taxable income puts you in the higher tax bracket then you only pay 40% on the amount earned above the basic rate threshold. For the remainder of your income, you will pay the applicable 20% rate on the lower taxable band.

The following tax rates and tax bands are based on the standard personal allowance of £12,570. If your personal allowance is different you will need to add/minus the difference from the figures below.

Tax on dividends

Dividends are profits distributed from a company to its shareholders. Profit is the remaining money a company has after paying all business expenses, liabilities, and taxes.

For shareholders, dividends payments are a form of income and they are taxed accordingly. However, the tax rates and allowances for dividends are different to regular employment income.

Dividend allowance

The dividend allowance is the amount an individual can earn tax free each year. For the 21/22 tax year this is set by HMRC at £2,000.

So, you only pay tax on dividend income above this allowance. In addition, you do not pay income that falls within your personal allowance if this hasn’t already been used from other income.

Dividend tax

Any dividend you receive above your personal allowance and dividend allowance is subject to dividend tax.

How much tax you pay depends on your income tax band, income from work, pensions, property and savings. All these elements are taken into account to determine your dividend tax band.

As such, this works in your favour as dividend income is taxed at a lower rate than income tax discussed above. The basic tax rate is 7.5%; higher tax rate is 32.5%; and additional tax rate is 38.1%.

The following dividend tax rates and tax bands are applicable after the personal allowance of £12,570 has been used.

Capital gains tax

Capital gains tax is the tax payable on the profit when you sell or dispose of an asset.

The rules are quite complex – for example, capital gains tax doesn’t apply to all assets like your main home or car, which are exempt. There are also different rules if an asset is given to a spouse.

Individuals do have an annual exempt amount so only gains above this are liable for capital gains tax.

For the 21/22 tax year this is set at £12,300. Capital gains tax is split into two rates: standard and higher, 10% and 20% respectively for the 21/22 tax year.

Furthermore, there are different rates for capital gains tax on residential property with standard at 18% and higher at 28% for the 21/22 tax year.

Due to the relative complexity of calculating capital gains tax, it is often worth speaking to your bookkeeper or accountant to assess whether you are liable.

We offer bookkeeping and accounting services for individuals and small businesses, contact us today for a free consultation.

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