UK Tax Rates and Allowances for 2021/22

UK tax rates and allowances for 2021/22

The UK government released its budget on March 3, 2021, and various changes have been made to the tax bands and allowances for the tax year 2021/22. These tax rates, tax brackets and tax thresholds differ based on where you live in the UK. Let us discuss all the tax rates, tax brackets and tax thresholds for the tax year 2021/22.

UK income tax rates and allowances

Income Tax

*PA is withdrawn at £1 for every £2 by which ‘adjusted income’ exceeds £100,000. There is no allowance given above £125,140.

†The part of the PA that is transferable to a spouse or civil partner who is not a higher or additional rate taxpayer.

**If gross income exceeds this, the limit may be deducted instead of actual expenses.

BRB and additional rate threshold are increased by personal pension contributions (up to permitted limit) and Gift Aid donations.

General income (salary, pensions, business profits, rent) usually uses personal allowance, basic rate and higher rate bands before savings income (mainly interest). Scottish taxpayers are taxed at different rates on general income (see below).

To the extent that savings income falls in the first £5,000 of the basic rate band, it is taxed at nil rather than 20%.

The PSA taxes interest at nil, where it would otherwise be taxable at 20% or 40%. Dividends are normally taxed as the ‘top slice’ of income. The DA taxes the first £2,000 of dividend income at nil, rather than the rate that would otherwise apply.

The Scottish rates and bands do not apply for savings and dividend income, which are taxed at normal UK rates.

High Income Child Benefit Charge (HICBC)

1% of child benefit for each £100 of adjusted net income between £50,000 and £60,000.

Pensions

Annual relievable pension inputs are the higher of earnings (capped at AA) or £3,600.

*Usually tapered down, to a minimum of £4,000, when adjusted income exceeds £240,000.

†Applies to those reaching state retirement age after 5 April 2016.

Annual investment limits

National Insurance Contributions

*Nil rate of employer NIC for employees aged under 21 and apprentices aged under 25, up to £967pw.

**Some businesses do not qualify, including certain sole director companies and employers who have an employer’s Class 1 NIC liability of £100,000 or more for 2020/21. Employer contributions (at 13.8%) are also due on most taxable benefits (Class 1A) and on tax paid on an employee’s behalf under a PAYE settlement agreement (Class 1B).

Vehicle Benefits

Cars

Taxable benefit: List price of car multiplied by chargeable percentage.

Then a further 1% for each 5g/km CO2 emissions, up to a maximum of 37%.

Diesel cars that are not RDE2 standard suffer a 4% supplement on the above figures but are still capped at 37%.

Vans

Chargeable value of £3,500 (2020/21: £3,490) if private use is more than home-to-work. Zero-emission vans charged at £Nil (2020/21: £2,792).

Fuel

Employer provides fuel for private motoring in an employer-owned:

Car: CO2-based percentage from above table multiplied by £24,600 (2020/21: £24,500).

Van: £669 (2020/21: £666).

Employee contributions do not reduce taxable figure unless all private fuel is paid for by the employee (in which case there is no benefit charge).

Tax-free mileage allowances

Capital Gains Tax

*Individuals are taxed at 18%/28% on gains on residential property and receipts of carried interest. Trusts and estates are taxed at 28% in these circumstances.

**Lifetime limit for qualifying gains: BADR £1m; IR £10m.

Corporation Tax

*Additional deduction for qualifying R&D.

**Taxable expenditure credit for qualifying R&D.

SMEs that make losses can surrender the deduction to HMRC in exchange for a payment of 14.5% of the loss (capped at £20,000 plus 3 x PAYE & NIC for periods beginning from 1.4.21).

Main capital allowances

Property Taxes

Annual Tax on Enveloped Dwellings (ATED)

ATED applies to ‘high value’ residential properties owned via a corporate structure, unless the property is used for a qualifying purpose.

Stamp Duty Land Tax (SDLT), Land and Buildings Transaction Tax (LBTT) and Land Transaction Tax (LTT) from 1 April 2021

Residential property (1st property only)

*Nil rate band up to 30.6.21 is £500,000, between 1.7.21-30.9.21 is £250,000.

**Nil rate band up to 30.6.21 is £250,000.

A supplement applies for all three taxes where an additional residential property interest is purchased for more than £40,000 (unless replacing a main residence). It is also payable by all corporate purchasers. The rate is 3% (LBTT and LTT: 4%) of the total purchase price.

SDLT: From 1.7.21, first-time buyers purchasing a property of up to £500,000 pay a nil rate on the first £300,000 of the purchase price.

LBTT: First-time buyer relief increases the nil rate band to £175,000 from 1.4.21.

SDLT: A rate of 15% may apply to the total purchase price, where the property is valued above £500,000 and purchased by a ‘non-natural person’ (e.g. a company).

Non-residential or mixed use property

Value Added Tax

Download Tax rates 2021-22 guide

Inheritance Tax

*Up to 100% of the proportion of a deceased spouse’s/civil partner’s unused NRB and RNRB band may be claimed to increment the current NRB and RNRB when the survivor dies.

†RNRB is available for transfers of a main residence to (broadly) direct descendants. It tapers away at the rate of £1 for every £2 of estate value above £2m.

**Rate reduced to 36% if at least 10% of the relevant estate is left to charity.

Unlimited exemption for transfers between spouses/civil partners, except if UK domiciled transferor and foreign domiciled transferee, where maximum exemption £325,000.

100% Business Property Relief for shareholdings in qualifying unquoted trading companies, qualifying unincorporated businesses and certain farmland/buildings.

Reduced tax charge on gifts within 7 years before death

Annual exemptions for lifetime gifts include £3,000 per donor and £250 per recipient.

Key dates and deadlines

Payment dates

*UK residential property: CGT due within 30 days of completion.

Other payment dates

Corporation tax is due 9 months and 1 day from the end of the accounting period, unless a ‘large’ company paying by quarterly instalments.

2020/21 Filing deadlines

You are advised to consult us before acting on any information contained herein.

Also See: Capital gains tax advice

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