Personal Taxation
Introduction
Income Tax is charged on all income arising in the UK. An additional complication is that UK residents may also be liable for Income Tax on income arising from overseas sources, dependent upon individual circumstances.
Personal allowances are deducted from income before calculating Income Tax. Additional allowances such as age-related personal allowance and age-related married couples allowance may also help to reduce the Income Tax payable.
Married couples are treated as individuals for the purpose of Income Tax, and have their own allowances and rates. For 2008-09, the basic personal allowance is £5,435. This is how much you can earn in the tax year before you start to pay Income Tax.
Income Tax is a progressive or graduated tax - it increases as a percentage of income as your income gets larger. Generally you pay Income Tax at the basic rate of 20% on the first £36,000 you earn over and above the personal allowance. Above £36,000 you pay the higher rate of 40%.
To be a higher rate taxpayer you would have to be earning a gross annual income of more than £41,435 (assuming you are under 65, with no adjustments to your personal allowance), but you would, of course, already be paying tax at 20% within the basic rate band.
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