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| Version 6 | Version 7 |
|---|---|
| Income tax: How will thresholds change and what will I pay? | Income tax: How will thresholds change and what will I pay? |
| (about 1 month later) | |
| In November, the government announced changes to income tax rules, which means millions of people will end up paying more. | |
| Income tax is the government's single biggest source of funding. | |
| What is happening to income tax thresholds? | |
| Chancellor Jeremy Hunt has frozen the income tax personal allowance at £12,570 until April 2028. | |
| He has also frozen the point (threshold) at which people start paying higher tax rates. | |
| It means that as wages rise, people pay tax on a larger proportion of their earnings, and more people move into higher tax brackets. | |
| The Office for Budget Responsibility - which independently assesses the government's economic plans - estimated that freezing thresholds until 2028 will create an additional 3.2 million new taxpayers. It said 2.6 million more people would pay higher rate tax. | |
| Mr Hunt also announced that on 6 April 2023, the threshold when the highest earners start paying the top rate of tax will fall from £150,000 to £125,140. | |
| Income tax rates, thresholds and personal allowances | Income tax rates, thresholds and personal allowances |
| Check your income tax code and personal allowance | Check your income tax code and personal allowance |
| What income do you pay tax on? | What income do you pay tax on? |
| You pay income tax to the government on earnings from employment and profits from self-employment. | You pay income tax to the government on earnings from employment and profits from self-employment. |
| Income tax is also due on some benefits and pensions, the money you get from renting out property, and returns from savings and investments above certain allowances. | Income tax is also due on some benefits and pensions, the money you get from renting out property, and returns from savings and investments above certain allowances. |
| These rules apply in England, Wales and Northern Ireland. Scotland has different rules to the rest of the UK. | These rules apply in England, Wales and Northern Ireland. Scotland has different rules to the rest of the UK. |
| What is the basic rate of income tax? | What is the basic rate of income tax? |
| You pay the basic rate of income tax on earnings between £12,571 and £50,270 a year. | You pay the basic rate of income tax on earnings between £12,571 and £50,270 a year. |
| The basic rate is 20%, so a fifth of the money you earn between those amounts goes to the government in income tax. | |
| What is the higher rate of income tax? | What is the higher rate of income tax? |
| The higher rate of income tax is 40%, and is paid on earnings between £50,271 and £150,000 a year. The top of this band will fall to £125,140 from April 2023. | The higher rate of income tax is 40%, and is paid on earnings between £50,271 and £150,000 a year. The top of this band will fall to £125,140 from April 2023. |
| Once you earn over £100,000 a year, you start losing your tax-free personal allowance, which means you have to pay income tax on the first £12,570 of your earnings. | |
| You lose £1 of your personal allowance for every £2 that your income goes above £100,000. If you earn more than £125,140 a year, you no longer get any personal allowance. | |
| What is the additional rate of income tax? | What is the additional rate of income tax? |
| Under the current rules, the additional rate of income tax is 45%, and is paid on earnings above £150,000 a year. | Under the current rules, the additional rate of income tax is 45%, and is paid on earnings above £150,000 a year. |
| This will drop to £125,140 on 6 April 2023. | |
| The government says about 629,000 people currently pay the additional rate of income tax. | |
| What is National Insurance? | What is National Insurance? |
| For employees, National Insurance is in many ways similar to income tax - it is also a tax on the money you earn. | For employees, National Insurance is in many ways similar to income tax - it is also a tax on the money you earn. |
| It is the second biggest source of money for the government. | It is the second biggest source of money for the government. |
| It works on some of the same thresholds as income tax. | It works on some of the same thresholds as income tax. |
| You do not pay it on the first £12,571 you earn a year. It is then charged at 12% on earnings up to £50,271, and it is 2% on any money made above that. | You do not pay it on the first £12,571 you earn a year. It is then charged at 12% on earnings up to £50,271, and it is 2% on any money made above that. |
| Mr Hunt confirmed the main National Insurance thresholds will also remain frozen until April 2028. | Mr Hunt confirmed the main National Insurance thresholds will also remain frozen until April 2028. |
| It is not paid by people over the state pension age even if they are still working. | It is not paid by people over the state pension age even if they are still working. |
| Employers also have to pay National Insurance. | Employers also have to pay National Insurance. |
| Will the National Insurance cut leave me better off? | Will the National Insurance cut leave me better off? |
| The universal credit claimants effectively paying top tax rates | The universal credit claimants effectively paying top tax rates |
| Who pays most in income tax? | |
| For most families in the UK, income tax is the single biggest tax they pay. You can see that in the dark green bars in the chart below. | |
| But poorer households tend to pay a bigger share of their taxes through taxes on spending: VAT and duties - the blue areas in each bar. Those are known as indirect taxes. | |
| For the poorest fifth of households, VAT is the biggest single tax that is paid. | |
| How is tax different in Scotland? | How is tax different in Scotland? |
| Some income tax rates are different in Scotland because of powers devolved to the Scottish Parliament. | Some income tax rates are different in Scotland because of powers devolved to the Scottish Parliament. |
| These are the current income tax rates: | These are the current income tax rates: |
| No tax paid on £12,570 personal allowance | No tax paid on £12,570 personal allowance |
| £12,571 to £14,732 starter rate of 19% | £12,571 to £14,732 starter rate of 19% |
| £14,733 to £25,688 Scottish basic rate of 20% | £14,733 to £25,688 Scottish basic rate of 20% |
| £25,689 to £43,662 intermediate rate of 21% | £25,689 to £43,662 intermediate rate of 21% |
| £43,663 to £150,000 higher rate of 41% | £43,663 to £150,000 higher rate of 41% |
| Above £150,000 top rate of 46% | Above £150,000 top rate of 46% |
| Personal allowance reduced by £1 for every £2 earned above £100,000. | Personal allowance reduced by £1 for every £2 earned above £100,000. |
| On 6 April 2023, the point at which people start paying the top rate of 46% will fall from £150,000 to £125,140. | |
| How are tax and benefits different in Scotland? | How are tax and benefits different in Scotland? |
| Related Topics | Related Topics |
| Autumn Statement | Autumn Statement |
| Tax | Tax |
| Personal finance | Personal finance |
| UK taxes | UK taxes |
| Income tax | Income tax |