How Much Tax You Will Pay in 2016/2017

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UK poundsTaxes are a delicate subject to deal with. While most people are employed by a company who take care of their taxes for them, there are a lot of people who must file their taxes themselves as well as pay their National Insurance Contributions (NICs) without the help of a company.

It can be a difficult task to take on yourself, and a lot of people decide to pay an accountant to deal with their annual taxing. Regardless of how your taxes are dealt with, everyone pays it. And with that in mind, a lot of people wonder just how much tax they pay and why. So let's dive in.

Personal Allowance

When it comes to paying tax on your income, you won't have to pay tax on all of it. In the tax year 2015/2016 the personal allowance amount was at £10,600 although has risen to £11,000 for the tax year 2016/2017. This money is completely tax free. If you earn below the personal allowance amount you will not pay any tax on your income at all, although you will still have to pay for your National Insurance Contributions.

If, however, you are earning over the personal allowance amount, then you will be paying tax on that and furthermore will be paying more National Insurance Contributions.

Tax Bands and Income Tax

The United Kingdom Government updates the tax bands each tax year, meaning that if you have a set salary then the amount of tax you pay will differ each year. The tax bands for the tax year of 2016/2017 are as follows:

  • Personal Allowance – £11,000 with a 0% Tax Rate
  • Basic Rate – between £11,000 and £43,000 with a 20% Tax Rate
  • Higher Rate – between £43,000 and £150,000 with a 40% Tax Rate
  • Additional Rate – over £150,000 with a 45% Tax Rate

These bands do not include your entire income. For example, if you were to have an annual income of £35,000 then you would have your personal allowance deducted from that before any tax is taken. This does not include your National Insurance Contributions.

These taxes apply to any income you have made through a full-time job, part-time job, self-employment, or any income you have made through your business or properties. These are all considered as taxable sources.

Personal Savings and Savings Income

In the past, before the 6th of April 2016, any savings interest that was made had 20% of tax dedicated from it, and furthermore if you happened to be a higher-rate taxpayer then you had to pay an additional 20% of tax on top of that. If you were an additional rate taxpayer, then you would have had to pay a further 25%.

Although, starting on the 6th of April 2016 new personal savings allowance will be implicated into the savings income process. While the savings income tax will not be completed rid, savings will be tax free until they reach a limit of £1,000 at which point they will have 20% tax issues to any further savings. If you are someone who pays higher rate tax, then you will have to pay a total of £500 on your tax.

Dividend Income and Allowance

Referring back to the changes that began on the 6th of April 2016, even more changes are being made across the financial ground. Dividend Allowances will be altered in order to make it that the first £5,000 that you receive in dividends from your investments will be completely tax free. Any amounts above this result in the taxes found below.

  • Basic Rate – 10% Tax Rate is Applied
  • Higher Rate ­– 32.5% Tax Rate is Applied
  • Additional Rate – 38.1% Tax Rate is Applied

Capital Gains Tax

Starting on the 7th of April 2016, changes will also be made to capital gains income. A capital gain is the profit that you have made from either the sale of a property, or an investment that you have made. You can find the taxing percentages below.

  • Basic Rate – 10% Tax Rate is Applied
  • Higher Rate – 20% Rate is Applied

Although the standard Higher Rate taxing is 20%, this may differ depending on the taxable gains that are made from residential property sales profit.

If you plan on selling a business or your shares in a business, Capital Gains Tax will apply here. For the first £10,000,000 that you make from selling businesses, the standard tax rate will be 10%. After you have made over that amount, your tax will increase.

Lowered Tax Amounts

As previously said, tax can be delicate and it can be complicated at times too. There are several circumstances which would allow an individual, or married couple, to pay less tax. This may be down to them being eligible for Marriage Allowance, Disability Allowance, or Job Seekers Allowance. These are allowances that can contribute to the amount of tax that you pay on your income.

It's important that you know how much tax you are paying and that you make sure whoever has dealt with your annual taxing has done it correctly. They may be professionals but everyone makes mistakes, so read over it and make sure everything looks good!

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