Income tax encompasses tax which must be paid on certain types of income, including:
- money earned from employment as well as job related benefits
- any profits made as a result of self employment
- most pensions (eg state pensions and private pensions)
- rental income (with some exceptions for live-in landlords)
- income derived from trusts.
It does not need to be paid in respect of:
- any interest on savings which falls below the savings allowance
- income from Individual Savings Accounts (ISAs) and National Savings Certificates
- the first £2,000 of dividends from company shares
- the first £1,000 of income from self-employment
- the first £1,000 of income from property you rent (unless you're renting under the government's Rent a Room Scheme)
- National Lottery or premium bond winnings
Income tax rates
No income tax needs to be paid on income which falls within the Personal Allowance (£12,570). After that the income tax rates are as follows (2021/22 rates):
personal allowance (£12,570)
basic rate (£12,571 to £50,270) - 20%
higher rate (£50,271 to £150,000) - 40%
additional rate (over £150,000) - 45%
For further information on income tax, see the GOV.UK website.
Note that these rates only apply if you live in England, Wales or Northern Ireland. Scotland has their own tax rates listed on the Scottish Government website.