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Tax Rates 2016/17

Break down what the taxman gets

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Helen S

Updated April 2016

Tax rates

Nothing's as certain as death and taxes. Yet while there's no doubt we'll all be taxed, the rates can change rapidly. Will you pay 20% or will you end up in the 40% tax bracket?

This is an updated guide for the tax years starting 6 April 2016 - use it together with the Income Tax Checker tool.

What's my personal allowance?

Don't get squashed by the tax man

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 remains untaxed.

What's my 2016/17 personal allowance?
Age Earning bracket 2016/17 personal allowance
Any age Under £100,000 £11,000
£100,000 to £122,000 Decreases from £11,000 by £1 for every £2 you earn, until it reaches £0
Over £122,000 £0
Extra allowances
Are you blind?
Your personal allowance + £2,290

Are you married or in a civil partnership?

If the answer to that is yes and both partners were born on or after 6 April 1935 then you may be entitled to the new Marriage allowance which allows couples to transfer a proportion of their personal allowance between them.

Alternatively, if at least one partner was born before 6 April 1935, then you can get a different married couples' allowance, which, despite its name, is also available to civil partners.

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 5 December 2005, it uses the highest earner's salary.

Born 6 April 1935 or before - married couples' allowance 2015/16?
Salary 2016/17 married couples' allowance
Under £27,700 £8,355
Between £27,700 and £37,970 Decreases from £8,355 , by £1 for every £2 you earn until it reaches £3,220
Over £37,970 £3,220
Once you know your allowance, work out 10% of it. You will receive this amount in tax relief.

What income tax band am I in?

Once you know your personal allowance, anything extra earned will be subject to income tax. For the 2016/17 tax year, there are three marginal income tax bands, including the 40% tax bracket and the 45% 'additional rate' bracket (also remember your personal allowance starts to shrink once earnings hit £100,000).

What is my income tax rate 2016/17?
Earnings 2016/17 rate
Under your personal allowance (PA)
For most, £11,000
No income tax payable
Between PA and PA+£32,000
For most, £11,000 to £43,000
Between PA+£32,000 and £150,000
For most, £43,000 to £150,000
Over £150,000 45%

Marginal bands mean you only pay the specified tax rate on that portion of salary. For instance, if your salary puts you in the 40% tax bracket (over PA+£32,000 in 2016/17), then you only pay 40% tax on the segment of earnings in that income tax 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 usually stop paying when you reach state pension age.

What's my national insurance rate 2016/17?
Earnings National insurance rate 2016/17 (For employed, NOT self-employed)
Per week Annual salary
Under £155 Under £8,060 No national insurance payable
£155 - £827 £8,060 - £43,000 12% on everything earned between £155-£827/week
Over £827 Over £43,000 12% on everything earned between £155-£827/week, 2% on everything above that
Some advanced national insurance rules, particularly for the self-employed, are very complicated. See the HMRC website for full rates.

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, among other things.

Each year, individuals have an annual exemption amount that allows them to receive some gains tax-free. Above this, you pay capital gains tax on all gains.

Capital gains tax in 2016/17
Annual exemption amount £11,100 for individuals
Standard capital gains tax rate 18% on residential property, 10% on other assets
Higher capital gains tax rate 28% on residential property, 20% on other assets
Your rate of capital gains tax will depend on your other taxable income. See the HMRC website for more on how to work this out.

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 the money they pay into their pension via their employer's PAYE system. Instead, the tax relief is used to top up your pension contributions.

Nest egg

If you aren't a taxpayer, then you'll be given an extra £20 for every £80 you pay into a pension up until you've contributed £2,880. This means the Government tops up your pension to £3,600.

However, there are some limits on the amount of tax-free contributions you can make (both in a year and over your lifetime).

Pension contribution limits 2015/16 & 2016/17
Annual tax-free contribution limit £40,000 £40,000
Lifetime tax-free allowance £1,250,000 £1,000,000

Note that if you have an annual income of over £150,000 this annual allowance will be reduced (in 2016/17).

If you use the new pension freedoms to access your pension pot, then your annual allowance will drop to £10,000 for that year.

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