Understanding UK Tax Brackets and Rates
A comprehensive guide to the different tax brackets and rates in the UK, explaining how they apply to various income levels and types.
Income Tax Brackets
In the UK, income tax is charged at different rates depending on the level of your taxable income. For the 2024/24 tax year, the tax brackets are as follows:
- Personal Allowance (tax-free): Up to £12,570
- Basic rate (20%): £12,571 to £50,270
- Higher rate (40%): £50,271 to £150,000
- Additional rate (45%): over £150,000
It's important to note that these brackets apply to taxable income, which is your total income minus any tax-free allowances and reliefs you're entitled to.
National Insurance Contributions
In addition to income tax, most UK residents also pay National Insurance contributions (NICs). For employees, NICs are deducted from your salary along with income tax. The rates for the 2024/24 tax year are:
- 12% on earnings between £12,576 and £50,270 per year
- 2% on earnings above £50,270 per year
Self-employed individuals pay a different rate of NICs, and the thresholds are slightly different.
Other Types of Income
Different types of income are taxed in different ways. For example:
- Savings income (like interest on bank accounts) is taxed at 0%, 20%, 40% or 45% depending on your income tax bracket
- Dividend income from shares is taxed at 8.75%, 33.75% or 39.35%, again depending on your tax bracket
- Capital gains (profits from selling assets like shares or property) are taxed at 10% or 20% for most assets
There are allowances and exemptions for each of these types of income, so not all of it is always taxable.
Understanding which tax bracket you fall into and how different types of income are taxed can help you plan your finances more effectively. For personalized tax planning advice, it's always best to consult with a qualified tax professional.