Personal tax rates and allowances for 2017/2018 have been released by HMRC. In this article, we’ll look at when you start paying taxes, how much you’ll pay, and what you’re able to keep for yourself and away from the clutches of the taxman.
Personal allowance 2017/2018
|Annual personal allowance||£11,500||£11,000||£10,600||£10,000|
|Threshold at which personal allowances begins to
fall by £1 for ever £2 income over threshold
|Personal allowance if born between 6 April 1938
and 5th April 1948
|Personal allowance if born before 6 April 1938||–||–||£10,660||£10,660|
|Blind person’s allowance||£2,320||£2,290||£2,290||£2,230|
|Married Couples Allowance (maximum)||£8,445||£8,335||£8,335||£8,165|
|Married Couples Allowance (minimum)||£3,260||£3,220||£3,220||£3,140|
|Married Couples Allowance threshold at which
allowance reduces by £1 for every £2 over threshold
|Personal Savings Allowance (basic rate taxpayer)||£1,000||£1,000||–||–|
|Personal Savings Allowance (higher rate taxpayer)
|Personal Savings Allowance (basic rate taxpayer)||–||–||–||–|
|Capital gains tax allowance||£11,300||£11,000||£11,100||£11,000|
|Child benefit ceiling (clawback applies on
individual salaries above this amount)
Income tax personal allowance
For your first £11,500 of income (whether that’s salary, dividends, rental income, or any other form of earnings), you don’t have to pay any income tax on the amount.
Up until the start of the 2016/2017 tax year, an additional age-related personal allowance was applied to taxpayers born between 6 April 1938 and 5 April 1948. This benefit no longer exists.
Likewise, the additional age-related personal allowance for people born before 6 April 1938 is no longer available, having been scrapped from 6th April 2016.
Blind person’s allowance
If you’re registered blind or severely sight-impaired with your local authority in England and Wales, you receive an additional £2,320 on top of your personal allowance. As this income is not taxed at 20%, this means you’re not getting paying £464 income tax on that extra amount.
If you live in Scotland or Northern Ireland, you’re entitled to receive blind person’s allowance if your blindness or severe sight restriction stops you from doing work for which eyesight is essential.
To claim blind person’s allowance, you should phone 0330 200 3301.
You are allowed to transfer your blind person’s allowance to your spouse or civil partner. You qualify for this if you’re not paying tax or can’t use all of your blind person’s allowance. To do this, you need to fill in form 575.
If you’re married or in a civil partnership and at least one of you was born after 6th April 1935, you can transfer £1,150 of your personal allowance to your other half if:
• you earn less than £11,500 and
• your spouse or civil partner earns between £11,501 and £45,000 (£43,000 in Scotland).
By transferring that part of your allowance, as a couple you will pay £225 a year less in tax. To claim Marriage Allowance, click here.
You have four years in which you can make a claim for Marriage Allowance.
Marriage Couple’s Allowance
If you’re married or in a civil partnership and you were both born between 6th April 1935, you can claim Married Couple’s Allowance.
Couples claiming this allowance will receive between £326 and £844.50 in cuts from their tax bill. You can transfer any unused allowance to your partner if you don’t pay enough tax or your tax bill is not high enough (you need form 575 for this).
In addition, you can share or transfer Married Couple’s Allowance before the tax year starts by filling in form 18.
You can earn up to £7,500 a year without paying any tax with the government’s Rent-a-room scheme.
Open to both homeowners and tents, you can charge up to £7,500 in rent and other expenses (like providing meals, cleaning, washing, and so on) as long as the room is within your primary residence – that is, where you live.
If your charges are below £7,500, you do not need to report it to HMRC. If it’s over that level, you’ll need to fill in a Self Assessment and pay tax on the amount at the appropriate level.
If you and your spouse/civil partner are renting out the room, the £7,500 allowance turns into a £3,750 per person allowance.
Personal savings allowance
Introduced in tax year 2016/2017, a new tax-free allowance on income from savings was introduced.
If your total taxable income in a year is less than £17,000, no tax on savings is now payable.
For basic rate taxpayers, your first £1,000 in savings income is tax-free. For higher-rate taxpayers, it’s your first £500. For additional rate tax payers, there is no personal savings allowance.
Under the new scheme, the following counts as savings income:
• interest from bank and building societies
• interest from credit unions
• interest from National Savings and Investments
• distributions of interest from authorised unit trusts, open-ended investment companies, and investment trusts
• income from government gilts
• income from corporate bonds
• income from most types of purchased life annuity payments
The interest you make from Individual Savings Accounts does not count towards your £1,000 or £500 personal allowance as it’s already free of tax.
If you earn less than £16,500 a year, you can benefit from the “starting rate for savings”. Your first £5,000 of savings is tax free. This allowance reduces for every £1 you earn over the personal allowance of £11,500.
So, if you earned £13,500 in a year, your starting rate for savings would reduce by £2,000 as your pay is £2,000 above the personal allowance. Therefore, all interest you earn that year up to £3,000 will not be taxed.
Capital gains tax allowances
Capital gains tax is payable on the profit you make from certain types of transactions.
You have an annual capital gains tax allowance of £11,300.
Capital gains tax may need to be paid when you sell any of the following for profit:
• personal items worth £6,000 or more
• any property you sell which is not your primary residence (i.e. where you live all the time)
• any shares that you own that are not made tax-free by being part of an Individual Saving Account
• a business in which you’ve had a 5% shareholding for more than a year.
If you sell your business, you have a lifetime capital gains tax allowance of £10,000,000 on the profit you make minus the expenses you incur (for example, solicitors, accountants, business transfer agents). If you’re under that amount, you pay 10% tax on the profit you make from selling your business minus any fees.
Dividend tax allowances
A dividend is a payment made to the shareholders of limited companies. It is another way to take cash out of a limited company in addition to salary.
There is a £5,000 dividend tax allowance under which no dividend tax is payable.
Personal tax rates 2017/2018
There are two main types of tax you’ll pay on your earnings, Income Tax and National Insurance.
If you’re employed or you are in an unincorporated business (sole trader or partnership), this is how much income tax you’ll pay on your (non-dividend) salary
|Basic rate (England, Wales, Northern Ireland)||Up to £33,500||Up to £32,000||Up to £31,785||Up to £31,865|
|Basic rate (Scotland)||Up to £31,500||Up to £32,000||Up to £31,785||Up to £31,865|
|Higher rate (England, Wales, Northern Ireland)||£33,501 to £150,000||£32,001 to £150,000||£31,786 to £150,000||£31,866 to £150,000|
|Higher rate (Scotland)||£31,501 to £150,00||£32,001 to £150,000||£31,786 to £150,000||£31,866 to £150,000|
|Additional rate (all UK||£150,001 and over||£150,001 and over||£150,001 and over||£150,001 and over|
Again, if you’re employed, these are the National Insurance rates you’ll pay…
|National Insurance rates for employees||2017-2018||2016-2017||2015-2016||2014-2015|
|Between £157 and £866 a week||12%||12%||12%||12%|
|Above £866 a week||2%||2%||2%||2%|
|Rebate from employees in contracted-out workplace
|Married women’s reduced rate between primary
threshold and upper earnings limit*
|Rate for employees deferring National Insurance**||2%||2%||2%||2%|
* until April 1977, married women could choose to pay a reduce rate of National Insurance, sometimes called the small stamp. If you pay the small stamp, your State Pension will be reduced and you won’t be able to claim some benefits
** employees with more than one job may be able to defer paying Class 1 National Insurance.
If you are in an unincorporated business (sole trader or partnership), you pay two types of National Insurance – Class 2 and Class 4.
Class 2 National Insurance is fixed at £2.85 per week. Class 4 National Insurance is based upon your profit during the year.
|Class 4 National Insurance||2017-2018||2016-2017||2015-2016||2014-2015|
|You pay 9% of your profit above this level||£8,164||£8,060||£8,060||£7,956|
|Above this limit, you pay 2% in Class 4||£45,000||£43,000||£42,385||£41,865|
If you’re a shareholding director in a limited company, you can also pay yourself in dividends. Here is how dividends are currently taxed
|Current dividend tax||Tax on dividends|
Receiving income from a trust
If you receive dividend income from a trust, that income does not qualify for the dividend tax allowance and you’ll have to pay income tax on them based upon your earnings levels.
Before you receive your income from the trust, the trustees must pay tax on it before the money reaches you. You can ask the trustees for a statement showing:
• the different sources of income
• the income you received
• the amount of tax was paid on your income
An accumulation or discretionary trust is a type of trust where the trustees have the choice on how they use the trust’s income, who they pay the income to, and when they pay it. With these types of trusts, trustees will often allow income to “accumulate”. They add accumulated capital to the capital already built up in the Trust. Pay-outs normally occur when the beneficiary has reach their age of entitlement.
With these types of trust, trustees will pay tax at 45% on the income. If you’re an additional rate payer, you won’t have any more tax to pay.
However, if you pay tax at 20% or 40%, you can reclaim the tax paid using form R40 or via your Self Assessment.
An interest in possession trust differs from an accumulation or discretionary trust. With an interest in possession trust, you, as the beneficiary, have an “immediate and automatic right” to the income as soon as the trust earns it. Your trustees must pass on to you all of the income they receive minus any expenses.
If you are a basic rate taxpayer, you will not have to pay any additional taxes on top of what your trustees paid unless it takes your adjusted annual net income into the higher rate category. Income that does take you past that threshold will be liable for tax.
If you are already a higher rate taxpayer, you will need to pay extra tax. The amount will be the difference between the amount your trustees paid and what you, as a higher rate taxpayer, would have to pay. You make this payment through Self Assessment.
If you are not a tax payer, you can reclaim all of the interest paid by your trustees using form R40.
Wise Accountant tip – if your trustees do not pay tax, you’ll need to pay it via Self Assessment. If you do not currently fill in a Self Assessment form, you need to register by 5th October following the tax year in which you receive your trustee income.
Personal contribution restrictions 2017/2018
HMRC places limits on how much you (or the company you work for) can put into your pension pot every year.
You can invest right up until the amount you earn – that’s called the earning limit. Anything above that doesn’t qualify for tax relief. So, if you earned £35,000 in one year but decided to put £45,000 into your pension scheme, it’s only the initial £35,000 that would get the tax relief.
For those earning £40,000 a year or more, you can pay a maximum of up to £40,000 into your pot and still enjoy the tax relief benefits. You can stretch your allowance back over 3 years too.
What that means is that if you’d put £20,000 into your pot for the last three years, you could invest £100,000 into your pension that year by combining the £40,000 for the current tax year and the £20,000 you didn’t put in in each other previous three tax years.
If you earn more than £150,000 in a year (that includes your salary, your pension contribution, and your employer’s pension contribution), your annual limit will reduce by £1 for every £2 you earn over £150,000.
So, if your earned £170,000 in a year, your annual limit goes down from £40,000 to £30,000. However, once you reach £210,000 in a year, when your annual limit will have shrunk to £10,000, that’s when the rule stops being applied. Anyone earning over £210,000 will have an annual limit of £10,000 – it will not go beneath that.
There is also a lifetime limit, in the current tax year, of £1,000,000 for your pension pot. Any savings above that level (including any interest or capital gains your pension makes for you) does not qualify for further relief.