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Personal Income Tax


Income tax is payable on taxable income at rates which vary according to the amount of income and its nature. Individuals are generally entitled to a tax-free amount or allowance, but care needs to be taken in situations where the relevant allowance could be reduced or lost – for example a claim by a non–domiciled individual for the remittance basis, anyone with an income of at least £100,000 or someone born before 6 April 1948 with an income of at least £27,000.

There is a limit on certain income tax reliefs which aren’t already capped, at £50,000 or 25% of adjusted income, whichever is greater. Restricted reliefs include losses and loan interest (although not gift aid) so where these have arisen, you will need to check your options carefully. If you want to make donations to charity out of income, there are tax-efficient ways of doing so.

Pensions are subject to special rules. Income received from pensions and related annuities is generally chargeable to income tax, though a tax-free lump sum can often be taken, in part, at or around retirement age. Contributions made to build up such pensions attract a certain amount of tax relief if the pension scheme is registered. Significant changes will apply from April 2015; these are described in the pensions section below.

For employees, non-cash benefits in kind are usually taxable and the amounts chargeable are the cost to the employer (or second-hand value if higher), or, for an asset made available to an employee, 20% of its initial market value.

Rates of tax 2014/15

  • Basic rate 20%
  • Higher rate 40%
  • Additional rate 45%
  • Starting savings rate chargeable on investment income 10%
  • Threshold of taxable income above which higher rate applies £31,865
  • Threshold of taxable income above which additional rate applies £150,000
  • Flat rate applicable to discretionary and accumulation trusts 45%
  • Dividend rate applicable to discretionary and accumulation trusts 37.5%


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