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Tax

In this section we aim to give you a basic understanding of the common taxes you might pay as well as explain the rates and allowances for this tax year.  

It makes sense to understand and carefully consider how you draw your income in retirement. Using the annual tax allowances and reliefs available can have the effect of increasing your net income.

Pension funds are now far more accessible and you should consider how your capital is invested and how your retirement income needs are addressed. Retaining as much capital as possible in the tax efficient wrappers of a pension and ISA will make the most of your returns.

Below are the latest tax rates and allowances for the current tax year:

Income Tax

Band Taxable income Tax rate
Personal allowance Up to £12,570 0%
Basic rate £12,571 to £50,270 20%
Higher rate £50,271 to £125,140 40%
Additional rate over £125,140 45%

 

Different rates apply to individuals that are resident in Scotland. Please visit gov.uk to find out the different rates that apply.

National Insurance

Earnings Class 1 National Insurance rate
Earnings within the basic rate tax band 8%
Earnings over the basic rate tax band 2%

Capital Gains Tax

The first £3,000 of realised gain is exempt. The below rates apply to chargeable gains on assets other than residential property.

Basic rate 18%
Above basic rate 24%

Dividend Tax

A Tax Free Dividend Allowance applies to the first £1,000 of dividends received.

Basic rate 8.75%
Higher rate 33.75%
Additional rate 39.35%

Capital Gains Tax for second homes & buy-to-let properties

The first £3,000 of realised gain is exempt.

Residential Property
Basic rate 18%
Above basic rate 24%

Dividend Tax

A Tax Free Dividend Allowance applies to the first £500 of dividends received.

 

Basic rate 8.75%
Higher rate 33.75%
Additional rate 39.35%

Personal Savings Allowance

Tax Rate Tax-free Allowance
Basic 20% Up to £1,000
Higher 40% Up to £500
Additional 45% No personal savings allowance

Pensions

Annual Allowance (AA) £60,000*

 

An eligible scheme member can contribute the higher of £3,600 p.a and 100% of relevant UK earnings and receive tax relief, subject to the overriding annual allowance (£60,000 for the current tax year). You can ‘carry forward’ unused AA from the previous 3 years (subject to HMRC rules).

You can find out more about carry forward and also make use of the government’s AA calculators by visiting www.hmrc.gov.uk/tools/annualallowancelimit/

*subject to a taper if threshold income is above £200,000 and adjusted income is over £260,000.

If you use the retirement flexibilities to access a defined contribution pension plan, this may reduce your AA to £10,000.

Individual Savings Account

 ISA Allowances £20,000*

 

*Up to £20,000 can be held in cash and/or stocks and shares.

Quick Tip

Marriage Allowance lets you transfer £1,260 of your personal allowance to your husband, wife or civil partner if they earn more than you. To benefit as a couple (as the lower earner) you must have an income of £12,570 or less.

You are entitled to Marriage Allowance if all of the following apply:

You are married or in a civil partnership

You don’t earn anything or your income is under £12,570

Your partner’s income is between £12,571 and £50,270 (UK excluding Scotland).

You can still apply for Marriage Allowance if you or your partner:

Are currently receiving a pension

Live abroad, as long as you get a Personal Allowance