Income tax applies to the amount of income after deduction of personal allowances.

Income is taxed in a specific order with savings and dividend income taxed last. Dividend income and savings income falling within the dividend and savings allowances still form part of the total income of an individual.

The starting rate band is only applicable to savings income. The 0% rate is not available if the taxable amount of non-savings income exceeds the starting rate band.

2018/19

Type Band of taxable income (£) Rate (%) Rate if dividends (%)
Starting rate for savings 0-5,000 0 n/a
Basic rate 0-34,500 20 7.5
Higher rate 34,501 – 150,000 40 32.5
Additional rate over 150,000 45 38.1

Savings Allowance

Band of taxpayer Amount (£) Rate (%)
Basic rate 1,000 0
Higher rate 500 0
Additional rate 0 n/a

Dividend Allowance

Band of taxpayer Amount (£) Rate (%)
All 2,000 0

2017/18

Type Band of taxable income (£) Rate (%) Rate if dividends (%)
Starting rate for savings 0-5,000 0 n/a
Basic rate 0-33,500 20 7.5
Higher rate 33,501 – 150,000 40 32.5
Additional rate over 150,000 45 38.1

Savings Allowance

Band of taxpayer Amount (£) Rate (%)
Basic rate 1,000 0
Higher rate 500 0
Additional rate 0 n/a

Dividend Allowance

Band of taxpayer Amount (£) Rate (%)
All 5,000 0

Allowances

A personal allowance gives an individual an annual amount of income that is free from income tax. Income above this allowance is subject to income tax.

The personal allowance will be reduced if an individuals adjusted net income is above £100,000. The allowance is reduced by £1 for every £2 of income above £100,000.

An individual born before 6th April 1935 may be entitled to a married couple’s allowance, but this is reduced if the adjusted net income is above the married couple’s allowance income limit.

Marriage allowance – 10% of a personal allowance may be transferable between certain spouses where neither pays tax above the basic rate. The Marriage allowance is not available to couples entitled to the Married Couple’s allowance.

Personal Allowance

Allowances 2018/19 2017/18
Personal allowance £11,850 £11,500
Marriage allowance £1,190 £1,150

Married Couple’s Allowance

Either partner born before 6th April 1935

Reduction in tax bill 2018/19 2017/18
Maximum £869.50 £844.50
Minimum £336.00 £326.00
Age allowance income limit * £28,900 £28,000

Note ..
* Reduce married couples allowance by £1 for every £2 of adjusted net income over £28,900.