What Taxes You Will Pay
Statistics show that roughly one third of the money that we earn goes towards paying our taxes. While to some it might not seem like a lot, and to others it will, in the long run it makes a noticeable difference. When people notice the difference that it makes, it interests them to find out about the taxes that they pay and how much of their money goes towards these taxes.
This is one of the most common types of taxes that are paid. The amount of Income Tax which is taken depends on your annual income, which differs per person. Given that the majority of people are given a personal allowance which allows £11,000 of their earnings to remain untaxed, the taxable amount is significantly less than one would originally expect it to be.
The current Income Tax bands are:
Although when considering these tax rates, they only apply to income made within those ranges. For example, if you were to make a total income of £60,000 then £17,000 of that income would be classed as Higher Rate and would therefore be taxed at 40%, and the remaining amount of £32,000 (given that Personal Allowance was deducted) would be taxed at a rate of 20%.
National Insurance Contributions
National Insurance Contributions (NICs) are usually taken care of by your employee and are paid in order to make sure that you are eligible for a variety of state benefits. This is not separate to income tax, if you pay NICs you will also be paying Income Tax.
If you are earning between £155 and £827 then your National Insurance Contributions will be 12% and are known as Class 1. If you earn more than this, you will be pay an additional 2% on the earnings that exceed that amount.
If you are someone who is self-employed, your National Insurance Contributions are slightly different. If you make above £5,965 then you will be £2.80 a week as your National Insurance Contributions, although if your earnings exceed this amount then you will be paying an additional contribution of 9% provided that your earnings are between £8,060 and £43,000. Anything that exceeds that limit will have a 2% NICs rate.
If your income is below the amount of £5,965 then you are able to opt out of paying National Insurance Contributions.
Value Added Tax
While value added tax is not taken directly out of your earnings, it is applied to almost all goods or services that you pay for. The standard VAT rate for the tax year 2016/2017 is 20%. This amount is automatically added on when you pay for a product or service.
There are however some exceptions when it comes to Value Added Tax. If you are buying either books, children's clothing or foods, then you will not pay Value Added tax on those. If you are buying either power or fuel, then the tax is limited to 5%.
Stamp Duty Land Tax
When you purchase a residential property that exceeds the amount of £125,000 you will have to pay Stamp Duty Land Tax. You can find the applicable rates below.
Inheritance Tax is only applicable if the estate worth exceeds £325,000. If you are married or are part of a civil partnership, then this value may be extended to £650,000.
Capital Gains Tax
Your Capital Gains Tax is based on the profit that you make from any properties or investments that you have made.
Referring to the financial changes made for the UK 2016 Budget, the Capital Gains Tax rates are:
Council tax is something that all residents must pay, and it is most commonly paid as a single sum once a year although some people opt to pay it on a plan. Council Tax goes towards public essentials such as street lights, traffic lights, and such. They are dealt with by your local council and the amount you pay depends on your residential home value.
If you are not employed by an employer, and you are self-employed, then it is important that you research and learn about which taxes you are eligible to pay and which tax bands you fall into for each type of tax. Who knows, maybe you will end up saving some money!