Personal Income Tax

Personal Income Tax

 

Tax rates and allowances (Table A)

It may be unprecedented for a Budget speech not to mention personal income tax. Philip Hammond made big increases in allowances for 2019/20 in his last Budget, and the main ones have been frozen for 2020/21. Income Tax rates are now extremely complicated. An individual’s total tax on any given amount will vary depending on the types of income they receive (for example, salary, profits, rent, interest, dividends), but at least someone on the same income will pay the same tax next year as they did this year.

The level of income at which the personal allowance is withdrawn has been £100,000 since the rule was introduced in April 2010, and inflation means that far more people are now affected. Every £2 of income over that level reduces the allowance by £1. This results in an effective marginal rate of tax of 60% in the band of income up to £125,000 in 2020/21, above which the taxpayer will have no personal allowance.

The Scottish Parliament has set different tax rates and thresholds for general income of Scottish taxpayers (details in Table A). The Welsh Government also has the power to set a different rate of income tax for non-savings, non-dividend income for Welsh taxpayers, but has announced that it will not vary the UK rates.