Starting, basic and higher rates

Rate
%
2012 – 13 2011 – 12 2010 – 11 2009 – 10 2008 – 09
10 0 – £2,710 0 – £2,560 0 – £2,440 0 – £2,440 0 – £2,320
20 0 – £34,370 0 – £35,000 0 – £37,400 0 – £37,400 0 – £34,800
40 £34,371-£150,000 £35,001-£150,000 £37,401-£150,000 Over £37,400 Over £34,800
45 N/A N/A N/A N/A N/A
50 Over £150,000 Over £150,000 Over 150,000 N/A N/A

Note 1:

Savings income is normally taxed in the same way as “other income” at the basic, higher and additional rates of tax (20%, 40%, 45% and 50%).

However, a starting rate of tax 10% will apply to savings income where it falls into the limits set in the legislation. The limits are:

2012/13 – £2,710

2011/12 – £2,560

2010/11 – £2,440

2009/10 – £2,440

2008/09 – £2,320

To determine the appropriate rate of tax to apply to savings income, it is treated as the next slice of a taxpayer’s income after “other income” has been taxed (i.e. savings income is taxed after employment income, trading income and other investment income).

Therefore, a taxpayer with taxable income will be taxed according to the level of their “other income” as follows (using 2011/12 thresholds):

No “other income”

  • the first £2,560 of taxable savings income is taxed at 10% .

“Other income” below £2,560

  • savings income falling into the remainder of the first £2,560 is taxed at 10%.

“Other income” in excess of £2,560

  • the 10% rate is not applicable.

The remainder of savings income is then taxed at 20%, 40%, 45% and 50% according the band in which the income falls.

In short, the 10 per cent starting rate applies to savings income only. If, after deducting Personal Allowance from the total income liable to Income Tax, the non-savings income is above this limit then the 10 per cent starting rate for savings will not apply. Non-savings income includes income from employment, profits from self-employment, pensions, income from property and taxable benefits.

The rates available for dividends are the 10 per cent ordinary rate, the 32.5 per cent dividend upper rate and the dividend additional rate of 42.5 per cent.