Tax Rates 2009/10

It's said there’s nothing as certain as death and taxes. Yet while there’s no doubt we’ll all be taxed, the rates can change rapidly. This is an updated guide for the tax year starting 6 April 2009 to be used in conjunction with the Income Tax Checker tool.

• What's my Personal Allowance?
• What Income Tax rate will I pay?
• What's National Insurance?
• Capital Gains Tax
• Pension Contributions
• Discuss/Related Articles

To check what your take-home pay should be, including pension contributions and Student Loan repayments, use the free Income Tax Checker.

What’s my Personal Allowance?

Each of us has a ‘personal allowance’, which denotes the amount we can earn without paying any Income Tax. If you earn more than your personal allowance, then you pay tax at the applicable rate on all earnings above the personal allowance, but the allowance remain untaxed.

Your specific personal allowance depends on your age and, in some cases, your salary.

If you are married, and one partner is over 75 during the 2009/10 tax year, then you get an extra Married Couples' Allowance. 10% of this allowance is then subtracted from your annual income tax.

If you were married before 5 December 2005, it is automatically worked out using the husband’s salary. For couples married on or after December 2005, it uses the highest earners salary.

What Income Tax rate will I pay?

Once you know your personal allowance, anything extra earned will be subject to income tax. For the 2009/10 tax year, there are two marginal bands (though a third of 50% at £150,000 will be introduced in April 2010).

Marginal bands mean that you only pay the specified tax rate on that portion of salary. For instance, if your salary puts you in the 40% tax band (ie. it is over ‘Personal Allowance + £37,400’), then you only pay 40% tax on the segment of earnings in that band. For the lower part of your earnings, you’ll still pay the appropriate 20% or 0%.

What’s National Insurance?

In addition to plain old income tax, most UK workers also have ‘National Insurance Contributions’ deducted from their pay. These kick in based on your earnings from the age of 16, and you stop paying when you reach state retirement age.

Capital Gains Tax

Capital Gains is the least common tax on income, and for many it won’t apply. However, if you sell or give away an ‘asset’ worth more than £6,000, you could have to pay CGT. It doesn’t apply for main homes, cars or lottery/pools winnings, amongst other things.

Each year, individuals have an Annual Exemption Amount that allows them to receive some gains tax-free. Above this, you pay a flat rate of Capital Gains Tax on all gains

Paying into a pension?

Pension payments get very complex indeed, yet the basic thing to remember is that most people don’t have to pay tax on money they pay into their pension via their employer’s PAYE system; instead the tax relief is used to topup your pension contributions.

If you aren’t a taxpayer, then you will get given an extra £20 for every £80 you pay into a pension, until your total contributions reaches £3,600.

However, there are some limits on how the amount of tax-free contributions you can make (both in a year and over your lifetime), though they only kick in for very big earners.

To check what your take-home pay should be, including pension contributions and Student Loan repayments, use the free Income Tax Checker.