Put simply, where you have income from savings and investments, you add it to your other income, take off your annual allowance, and pay tax on what remains at your "marginal rate".
The marginal rate will depend on:
These rules will be explored later in the tutorial, but first the basics:
Every UK taxpayer, regardless of age, is entitled to an annual personal allowance. This is the amount of gross income you are allowed to receive without paying any tax at all.
For 2008-2009 the figures are:
| Under age 65 (including children) | £6,035 |
| Age 65-74 | £9,030 |
| Age 75+ | £9,180 |
There is an additional allowance for married couples but tax relief is only available at the rate of 10%. Note that the so called "age allowance" for the over 65s is reduced by £1 for every £2 of income until the basic allowance is reached.
If your earnings are higher than the annual allowance, you pay tax at the following rates on the excess.
Income tax for the year to 5.4.2009
| Earnings | Income | Dividends | Interest |
|---|---|---|---|
| £1- £2,320 | 10% | 10% | 10% |
| £2,321- £36,000 | 20% | 10% | 20% |
| Over £36,000 | 40% | 32.5% | 40% |
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