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Income Tax

Rates and allowances - Income Tax

Income Tax allowances


2007-08

2008-09

2009-10

Personal Allowance

£5,225

£6,035

£6,475

Personal Allowance for people aged 65-74 (1)

£7,550

£9,030

£9,490

Personal Allowance for people aged 75 and over (1)

£7,690

£9,180

£9,640

Married Couple's Allowance

(born before 6th April 1935 but aged under 75) (1)(2)(3)

£6,285

£6,535

N/A

Married Couple's Allowance aged 75 and over (1) (2)

£6,365

£6,625

£6,965

Income limit for age-related allowances

£20,900

£21,800

£22,900

Minimum amount of Married Couple's Allowance

£2,440

£2,540

£2,670

Blind Person's Allowance

£1,730

£1,800

£1,890

 

(1) These allowances reduce where the income is above the income limit – by £1 for every £2 of income above the limit. However they will never be less than the basic Personal Allowance or minimum amount of Married Couple’s Allowance.

(2) Tax relief for the Married Couple's allowance is given at the rate of 10 per cent.

(3) In the 2009-10 tax year all Married Couple's Allowance claimants in this category will become 75 at some point during the year and will therefore be entitled to the higher amount of the allowance - for those aged 75 and over.

 

Income Tax rates and taxable bands

 

2007-08

Starting rate: 10%

£0-£2,230

Basic rate: 22%

£2,231-£34,600

Higher rate: 40%

Over £34, 600

 

2008-09

2009-10

Starting rate for savings: 10%*

£0-£2,320

£0-£2,440

Basic rate: 20%

£0-£34,800

£0-£37,400

Higher rate: 40%

Over £34,800

Over £37,400





* From 2008-09 there is a 10 per cent starting rate for savings income only.

If your non-savings income is above this limit then the 10 per cent starting rate for savings will not apply.

The rates available for dividends are the 10 per cent ordinary rate and the 32.5 per cent dividend upper rate.

Banks and building societies will automatically deduct tax at a rate of 20% from interest earned, although non-taxpayers can apply to receive interest gross. However if a taxpayer is entitled to have any of his savings income taxed at 10%, he will be able to make a claim for a tax refund of up to £232

For example if Fern receives (all gross figures) a salary of £6,100, a dividend of £30,500 and bank interest of £4,000

Total income £40,600 less Personal Allowances (PA) of £6,035 = £34,565 taxable income  

Non-savings income £6,100 - PA £6,035 = £65 x 20% = £13.00 tax

This leaves £2255 (£2320-£65) of the savings rate remaining x 10% = £225.50 tax

Savings income £4,000 - £2255 = £1745 x 20% = £349.00 tax

Dividend income £30,500 x 10% = £3,050.00 tax

Total tax due £3637.50 (an effective rate of 10.52%)

Tax deducted at source PAYE on salary £13 Savings at 20% £800 and Dividends at 10% £3,050 = £3863 tax

Tax Refund Due £225.50 which is equal to £2,225 x 10% (20% deducted v 10% due).