Arguably the most common (and often the most misunderstood) tax there are many areas for planning to keep bills to a minimum. For those with their own businesses there are special opportunities to save income tax by a variety of means although, as with all things legal, careful attention needs to be paid to individual circumstances.
For an overview of civil partnerships; tax please click on the above Taxes link to Tax Planning Tips/ Other Notes.
A general overview of tax rates etc. is given below with other aspects of the tax covered throughout this site. Note: Capital allowances/equipment depreciation is covered in the corporation tax section of this site. The same principles apply for income tax.
Income tax in the UK is levied on a “tax year” basis, namely, 6th April to following 5th April. Deduct any allowances claimable (depending on your personal situation) from gross income to arrive at the figure of net taxable income.
Some of the main allowance deductions due for the tax year 2023/2024 are these:
- Basic – personal £12,570*
- Transferable marriage allowance £1,260
- Small trading allowance £1,000
- Small property income allowance £1,000
- Personal savings allowance £1,000 basic rate taxpayers OR £500, higher rate taxpayers
- Dividend allowance £1,000
*Full allowance granted ONLY if total income below £100,000.
Taxable earned income is then charged at the following scale:
- 20% on taxable income up to £37,700 (Basic rate)
- 40% on further income up to £150,000 (Higher rate)
- 45% on all income above £150,000 (Additional rate)
Investment/savings income is taxed at other rates
The following reliefs may be deducted from total tax due:
10% of the following:
- Married couple’s allowance – either partner born before 6.4.1935 £9075
Relief granted at 10%; deducted from income tax bill
Tax relief is due on the following investments:
- Enterprise Investment Schemes (EIS) – 30% on the amount invested up to £1,000,000 *
- * £2m if at least £1 million is invested in Knowledge Intensive Companies (KICs).
- Venture Capital Trust schemes – 30% on the amount invested up to a maximum investment of £200,000
- Seed Enterprise Investment Scheme – 50% on the amount invested up to a maximum investment of £200,000
Child Tax Credit may be due to you if you or your partner fulfil the following conditions. That you:
* are aged 16 or over and
* are responsible for at least one child. This means a child aged under 16 or a qualifying young person up to the age of 19 who is in full-time education, or aged under 18 and finished full time education in the last 20 weeks and who has registered with the Careers Service and
* have gross income below a set limit to qualify for the full credits OR a reduced scale claim may apply if income is higher (more for families with a child in the year of birth)
This credit is awarded on a sliding scale reducing to nil where income is above the maximum.
Working Tax Credits are “top up” payments for single people/couples (higher amounts for couples) who work at least 16 hours per week and are on low income. Note – children are not required to qualify for working tax credits.
For further details and application forms telephone the HMRC tax credit hotline on 0845 300 3900 (0845 603 2000 in Northern Ireland). For additional help and contact please visit…..
The interaction between income tax, reliefs, allowances and credits can be confusing. Care must be taken to
arrive at the correct figure of tax/refundable especially under self assessment where miscalculation errors can be costly.
NOTE for American taxpayers >All US persons (citizens and green card holders) always remain taxable by the US on worldwide income and worldwide gains. Forever. No debate.
Even if there is no US tax payable, omitting any of the many “information returns” detailing non-US assets
can lead to stiff financial penalties simply for failure to file.
The new Foreign Account Tax Compliance Act (FATCA) now makes it mandatory for US filers to make annual returns
reporting income and separately details of non-US financial assets.
There is a new form to go with this new law which will require huge numbers of Americans in the UK to file annual reports with the IRS listing all savings and investments including pension plans.
However, US taxpayers living outside of the US only need to complete this form if they hold investments only within set limits
on the last day of the year or more than an overall within the tax year.
(The investment threshold is different for taxpayers living IN the US and different thresholds apply to couples who file joint Tax Returns.)