Personal Taxation

Income tax and capital gains tax rates

Allocation of rate bands

Taxable income uses up the rate bands in the following order:

G ‘general income’ (employment, pensions, business profits, rent)

S ‘savings income’ (mainly interest)

D ‘dividends’ (mainly distributions from companies)

If taxable general income is less than £5,000 (2014/15: £2,880), savings income is taxed at a ‘starting rate’ of nil (2014/15 : 10%)  until total taxable income exceeds that limit. This ‘starting rate band’ is part of the basic rate band.

Extension of basic and higher rate bands

A taxpayer who pays personal pension policy premiums, or gives cash to charity under the Gift Aid scheme, increases the basic and higher rate bands by the grossed up equivalent of the payment. This means that more tax is paid at the basic rate and less is paid at the higher rates. There are restrictions on the amount of tax relief for pension contributions (see Investment Reliefs).

Filing of return and payment

The 2015/16 personal tax return if a notice to file is issued is due by:
•31 January 2017 (online) or
•31 October 2016 (paper).

Penalty for late return:
•£100 (even if no tax is due);
•further penalties for more than 3, 6 or 12 months late.

The 2015/16 tax is payable under PAYE each month for tax on employment income, or deducted at source for the basic rate liability on savings and dividends. The balance of tax due under self assessment (SA) is payable as:
•payments on account by 31 January 2016 and 31 July 2016, based on 2014/15 SA income tax and NIC; and
•Any balance, plus any CGT, by 31 January 2017, with the first payment on account for 2016/17.

Missing any payment date leads to interest; missing the balancing payment date by 30 days will lead to a 5% penalty. Further 5% penalties apply when the balancing payment is 6 months late and 12 months late.

Main personal allowances

Age allowances

Personal allowance (PA)^

Married couple’s allowance (MCA)*^ (also for civil partners)

** Allowance is reduced if ‘adjusted net income’ (ANI) exceeds £100,000. ANI is total taxable income less qualifying pension contributions and Gift Aid donations. PA is reduced by £1 for every £2 of ANI over £100,000, so is nil when ANI is £121,200 or more.

^Age allowances are reduced by £1 for every £2 by which ANI exceeds the income limit. PA is reduced first until it reaches the minimum; then MCA is reduced until it reaches the minimum.

* Amount depends on age of older spouse; allowed at 10%; reduced if marriage or civil partnership took place during the tax year.

Main personal reliefs

Rent-a-room exemption for letting out part of the taxpayer’s only or main residence: gross income of £4,250pa.

Gift aid: on a cash gift to charity, the charity can reclaim 20/80 (25%) of the donation from HMRC if the donor makes a declaration. The donor increases the basic rate band by the gross gift (i.e. donation x 100/80). The market value of gifts of land or quoted shares can be deducted from taxable income for full tax relief, and the charity pays no tax on the gift received. Also the “Give As You Earn” scheme allows charitable gifts to be made from pre-tax pay, which reduces tax paid under PAYE.