Taxable Income calculation
Total Income − Allowable Deductions − Personal Allowance
Income tax bands
Personal Allow to £12,570 0%
B rate £12,571 to £50,270 20%
H rate £50,271 to £125,140 40%
Add rate Over £125,140 45%
If you earn more than £100,000 your personal allowance goes down by £1 for every £2 that your adjusted net income is above £100,000. This means your allowance is zero if your income is £125,140 or above.
Other tax free allowances
• savings interest
• dividend income, if you own shares in a company
You may also have tax-free allowances for:
•your first £1,000 of income from self-employment - this is your ‘trading allowance’
•your first £1,000 of income from property you rent (unless you’re using the Rent a Room Scheme)
Adjusted Net Income
Total Income − Gross Gift Aid − Gross Pension Contributions
Marriage Allowance Transfer
10% of Personal Allowance
Tax reducer = £1,260 × 20% = £252
Grossing Up Gift Aid
Donation × 1.25
Relief at Source (Pensions)
Net Contribution × 100 ÷ 80
Savings Income
Starting Rate Band = £5,000 at 0% (if non-savings income ≤ £5,000)
Personal Savings Allowance = £1,000 (basic), £500 (higher), £0 (additional)
Dividend Allowance
£500 at 0%
Dividend Tax Rates
8.75% (basic)
33.75% (higher)
39.35% (additional)
Income Tax
Group income into non-savings, savings, and dividends.
Apply personal allowance (and adjust if income > £100,000).
Extend tax bands for pension contributions and Gift Aid.
Apply allowances: Savings allowance, Dividend allowance, 0% savings starter rate.
Deduct tax reducers (e.g., Married Couple’s Allowance, EIS/VCT relief).
Deduct tax already paid (grossing up where needed).
NICs
Class 1 (employees), Class 3 (voluntary) Class 2 & 4 (self-employed).
Class 1 – Employees
LEL - £125
Up to £242/week: 0%
£242.01 – £967/week: 8%
UEL- Over £967/week: 2%
(Employers pay 15% on earnings over £96/week)
Class 1A & 1B – Employers
Class 1A: 15% on most taxable benefits and certain termination payments.
Class 1B: 15% on PAYE Settlement Agreements.
Class 2 – Self-Employed
Flat rate: £3.50 per week.
Small Profits Threshold: £6,845/year.
*(Note: From April 2024, Class 2 is no longer mandatory but can be paid voluntarily.)
Class 3 – Voluntary Contributions
Flat rate: £17.75 per week.
Class 4 – Self-Employed
Up to £12,570/year: 0%
£12,570.01 – £50,270/year: 6%
Over £50,270/year: 2%
Capital Gains Tax (CGT)
Calculate chargeable gains after reliefs (e.g., annual exempt amount, losses).
Apply rates (18%, 24%, or 24% for residential property).
Consider business asset disposal relief (14% up to 1 mil)
Inheritance Tax (IHT)
Calculate chargeable transfers.
Apply nil-rate band 325k, residence nil-rate band 175k, and taper relief. (3-4 80%, 4-5 60%, 5-6 40%, 6-7 20%) REMEMBER THIS IS A REDUCTION OF IHT PAYABLE ON GIFT
Lifetime transfers vs death estate.
Taxation of Investments
Investment bonds (chargeable event gains).
Onshore Bond
Tax inside bond- Yes (UK corp tax)
Tax credit on gain- 20% deemed paid
Extra tax for higher rate- 20% or 25% extra
Offshore Bond
Tax inside bond- No (gross roll-up)
Tax credit on gain- none
Tax- Full 20%, 40% or 45%
Top Slicing relief
Applies to chargeable event gains on non qualifying life policies (e.g., investment bonds).
Only relevant if the gain pushes you into higher/additional rate tax.
Calculate the full gain:
Total proceeds – premiums paid – previous withdrawals (if any).
Divide the gain by the number of complete years held: This gives the annual equivalent gain.
Add the annual equivalent gain to your other income: Work out the tax liability as if this smaller amount was added each year.
Calculate the tax on the full gain without relief.
Calculate the tax on the annual equivalent gain (using your marginal rates).
Multiply the difference by the number of years:
This is the relief amount.
Deduct relief from the full tax liability:
This gives the final tax payable.
Taxation of interest
Savings Allowance:
Basic rate taxpayers: £1,000
Higher rate taxpayers: £500
Additional rate taxpayers: £0
Savings Starter Rate: Up to £5,000 at 0% (only if non-savings income < £17,570).
After allowances:
Taxed at normal income tax rates:
Basic: 20%
Higher: 40%
Additional: 45%
Order of taxation
Non-savings income (employment, pensions).
Savings income (interest).
Dividend income.
