How does the higher tax bracket work?
The first thing you should note is that you have an annual personal tax allowance of £5035. This means you do not pay tax on the first £5035 in any tax year. (april-april). On the next £2151 you pay tax at a rate of 10%. Between £2151 and £33300 (over the allowance) you pay 22% Tax. Anything above this you pay 40% tax. This means the higher tax band starts at £38,335 (£33,300+£5035). Any income above this will be subject to 40% income tax. To complicate matters you pay national insurance at 11% for earnings between £97 and £645pw but this drops to 1% above £645pw. If you are close to the higher tax band you may be able to bring yourself back below the band by paying more into your pension. There is no other legitimate way to avoid the 40% demand. Also make sure your savings and investments are in tax efficient forms (such as ISAs). This will mean that you don’t have to pay tax on your interest.
The first thing you should note is that you have an annual personal tax allowance of £5035. This means you do not pay tax on the first £5035 in any tax year. (april-april). On the next £2151 you pay tax at a rate of 10%. Between £2151 and £33300 (over the allowance) you pay 22% Tax. Anything above this you pay 40% tax. This means the higher tax band starts at £38,335 (£33,300+£5035). Any income above this will be subject to 40% income tax. To complicate matters you pay national insurance at 11% for earnings between £97 and £645pw but this drops to 1% above £645pw. If you are close to the higher tax band you may be able to bring yourself back below the band by paying more into your pension. There is no other legitimate way to avoid the 40% demand. Also make sure your savings and investments are in tax efficient forms (such as ISAs). This will mean that you don’t have to pay tax on your interest. Note:- This assumes you are below 65 (above 65 your personal allowance increases to £7280).
