What tax rates apply to me? (2024)

What tax rates apply to my earnings and pensions (or other non-savings, non-dividend income)?

Non-savings, non-dividend income includes wages, pensions, taxable state benefits, profits from self-employment and rental income. If you are a pensioner, it includes all the income you get from your pensions, including the state pension. This is not a complete list. Separately, we provide more information on What income is taxable?.

You have to pay income tax on your taxable earned income (after deducting any allowable expenses that you have incurred) which exceeds your personal allowance (and blind person’s allowance, if eligible). For example, if you had earnings of £40,000 in 2023/24 and you were eligible for the standard personal allowance (£12,570 for 2023/24), then the amount on which you would need to pay tax is £27,430.

You pay income tax at the ‘basic rate’ of 20% on your taxable earned income which exceeds your personal allowance (and blind person’s allowance, if eligible) and which falls within the basic rate band. The basic rate band for 2023/24 is £37,700. So in the example above, an individual with taxable earnings of £40,000 would be liable to 20% tax on £27,430 (equating to £5,486).

If you have taxable earned income that exceeds both the basic rate limit and your personal allowance (and blind person’s allowance, if eligible), you have to pay more tax on the excess, at the ‘higher rate’ of 40% instead of the basic rate. The point at which you start to pay this is called the ‘higher rate threshold’. In 2023/24, the higher rate threshold is £50,270 (this is calculated by adding the £12,570 personal allowance to the £37,700 basic rate band).

If your taxable earned income exceeds the higher rate band limit, you have to pay tax at the additional rate of 45% on the income above the limit. The higher rate band limit (or additional rate threshold) is £125,140 for 2023/24.

If you live in Scotland, you might be a Scottish taxpayer. In this case, Scottish income tax rates and bands apply to your earnings or other non-savings, non-dividend income. There is more information in our section on Scottish income tax.

Similarly, if you live in Wales, you might be a Welsh taxpayer. In this case, Welsh income tax rates apply to your earnings or other non-savings, non-dividend income. There is more information in our section on Welsh income tax.

The example Thomas part 1 shows how earnings and other non-savings, non-dividend income are taxed.

What tax rates apply to my savings income?

As your taxable savings income is taxed after your earned income, the tax rates that apply to your savings income depend on how much earned or other non-savings, non-dividend income you have, for example, rental income.

If your taxable savings income falls within the basic rate band, you will normally pay income tax at the rate of 20% (remember this applies after deducting your personal allowance and blind person’s allowance, if eligible). The basic rate band for 2023/24 is £37,700. There is also a starting rate for savings income only, which may apply to your savings income in certain situations. If you are a basic rate taxpayer, you will also be eligible for the personal savings allowance of £1,000 in 2023/24.

If you have any taxable savings income above the basic rate limit, you will have to pay more tax on it. This is firstly charged at the higher rate of 40% on the income above that limit. This means that in 2023/24 you will pay tax at the rate of 40% on taxable savings income above the limit of £37,700 (again, this is after deducting your personal allowance and blind person’s allowance, if eligible). If you are a higher rate taxpayer, you will be eligible for a reduced personal savings allowance.

If your taxable savings income exceeds the higher rate limit, you will have to pay tax at the additional rate of 45% on the income above that limit. The higher rate band limit is £125,140 for 2023/24. If you are an additional rate taxpayer, you will not be eligible for the personal savings allowance.

There is more information on the interaction between different types of income and the effect on the rate of tax you pay below.

How does the starting rate for savings work?

The starting rate for savings is a special 0% rate of income tax for savings income that falls within certain limits. The starting rate for savings band is £5,000 for 2023/24. The 0% rate applies to as much of the first £5,000 of taxable income (after deducting the personal allowance and blind person’s allowance, if eligible) that is savings income. Note that dividend income is taxed after savings income. As a result, if you have dividend income it will not affect whether you are eligible for the starting rate for savings on your savings income.

The starting rate for savings will only apply to you if you have some savings income and your earned income and other non-savings, non-dividend income, before deducting the personal allowance (and blind person’s allowance, if eligible), is lower than a certain threshold. If you are not eligible for the blind person’s allowance, this threshold is £17,570 in 2023/24 (this is the £12,570 personal allowance plus the £5,000 starting rate for savings band). If you are eligible for the blind person’s allowance, the £17,570 threshold increases to £20,440 (being £12,570 personal allowance plus £2,870 blind person’s allowance plus £5,000 starting rate for savings band). These figures assume that you have not given up part of your personal allowance as part of a claim to the marriage allowance.

If your taxable earned and other non-savings, non-dividend income is above £17,570 for 2023/24 (or £20,440 if you are eligible for the blind person’s allowance), the starting rate for savings will not apply to your taxable savings income.

If any of your taxable savings income falls within the first £5,000 of the basic rate band, you will not be liable to pay any tax on that taxable savings income, as the starting rate for savings income is 0%.

As an example, if, in 2023/24, you are not eligible for the blind person’s allowance, you have pension income of £13,000 and savings income of £2,000, you will have total income of £15,000. This is less than £17,570, so you will be eligible for the starting rate for savings. We deduct the personal allowance (£12,570 in 2023/24) from the pension income which leaves £430 left to be taxed at 20%. The starting rate for savings applies to as much of the first £5,000 of taxed income that is savings income. In this case, the starting rate for savings could apply to up to £4,570 of savings income. As the savings income is only £2,000, all of it will be ‘taxed’ at the starting rate for savings, which is 0%.

What are the upper and lower limits of income to get the starting rate for savings?

The guide below just provides the general rule. This may not provide you with the correct result if you have additional tax allowances or expenses that you can claim.

If you have taxable earned and other non-savings, non-dividend income of between £12,570 and £17,570, the savings rate will apply to at least part of your savings income (as in the example above).

What are the upper and lower limits of income to get the starting rate for savings if you also get blind person's allowance?

The guide below provides the general rule. This may not provide you with the correct result if you have additional tax allowances or expenses that you can claim.

If you are also receiving blind person's allowance the upper limits will be increased by this amount and you will get the savings rate if your taxable non-savings, non-dividend income is between £12,570 and £20,440.

How does the personal savings allowance work?

Banks and building societies do not deduct tax from savings interest. This means you receive your interest gross. There is also a personal savings allowance, which effectively means you can usually have some savings income tax free.

The personal savings allowance does not reduce the amount of your taxable income. It is a nil rate band of tax for savings interest. You look at whether it applies to you after you have considered whether or not you are eligible for the starting rate for savings.

Generally speaking, if your total adjusted net income is less than £50,270 (for 2023/24) then you will have a personal savings allowance of £1,000. Adjusted net income is your total taxable income less certain deductions like gross Gift Aid contributions or pension contributions paid gross. See GOV.UK for more detail.

However, strictly speaking, in order to determine the amount of your personal savings allowance, you need to determine whether or not you have any income which is charged to tax at the higher rate (or additional rate). In considering this question, you must ignore all of the following:

• the effect of the personal savings allowance;
• the effect of the dividend allowance; and
• whether you are a Scottish or Welsh taxpayer

If you do not have any income which is charged to tax at the higher rate (or upper dividend rate), the amount of the personal savings allowance is £1,000. This will always be the case if you are eligible for the standard personal allowance and your total taxable income (including savings income taxable at a nil rate because of the personal savings allowance, and dividend income taxable at a nil rate because of the dividend allowance) is less than £50,270 (for 2023/24).

If you have income which is charged to tax at the higher rate or upper dividend rate (or would have been, ignoring the personal savings allowance, dividend allowance, and whether you are a Scottish or Welsh taxpayer), and not the additional rate or additional dividend rate, then your personal savings allowance is £500. If you have income which is charged to tax at the additional rate or additional dividend rate, then you are not eligible for a personal savings allowance.

You only have to pay income tax on savings income that exceeds your personal savings allowance.

Income that is covered by your personal savings allowance still counts as taxable income and therefore still uses up your basic rate band or your higher rate band of tax. This can affect the rate of tax you pay on savings income that exceeds your personal savings allowance, the rate of tax you pay on dividend income, and the level of the personal savings allowance you can get.

There is information about the personal savings allowance, including a simple example on GOV.UK.

There is information about both the personal savings allowance and the dividend allowance (see below) in our section on savings income. The guidance also contains examples that explain how these two allowances interact and how they interact with the starting rate for savings.

What tax rates apply to my dividend income?

As your taxable dividend income is treated as being taxed after your earned income and your savings income, the tax rates that apply to your taxable dividend income depend on how much earned income and savings income you have. You will therefore need to add your dividend income to your earned income and savings income in order to work out the tax band into which the dividend income falls.

The tax rates for dividends are different to those for earned income, other unearned income (such as rental income) and savings income.

All individual taxpayers are also entitled to a dividend allowance, which is a nil-rate band applying to the first £1,000 of dividend income received in a year.

If your taxable dividend income falls above the personal allowance (and blind person’s allowance, if eligible), above the dividend allowance but within the basic rate band, you will pay income tax at the rate of 8.75% on the dividend income. The basic rate band for 2023/24 is £37,700. Therefore, if you are entitled to the standard personal allowance of £12,570, the basic rate band would apply to taxable income from £12,571 to £50,270 (using 2023/24 figures).

For example, if you have earned income of £20,000, savings income of £5,000 and dividend income of £3,000, your total income is £28,000. The dividend income exceeds the dividend allowance but falls within the basic rate band. You would therefore be liable to tax at 8.75% on £2,000 of the dividend income.

For further examples, see our section on savings income.

If you have any taxable dividend income falling above the basic rate band and the dividend allowance, you will then have to pay tax at the higher rate of 33.75% on such dividend income.

If your total income exceeds £125,140, additional rates apply.

Before 6 April 2016, UK dividend income came with a tax credit of 10%. In effect, the amount you received was deemed to be 90% of the gross dividend. This meant that if your dividend income fell within the basic rate band, you did not have to pay any further tax on it, as the tax due was offset by the 10% tax credit.

UK dividend income received from 6 April 2016 onwards does not have a tax credit – the dividend you receive is the gross dividend on which you pay tax.

How does the dividend allowance work?

UK dividend income is paid to you gross and there is no dividend tax credit. There is also a dividend allowance of £1,000 in 2023/24 available to anyone who receives dividend income, which effectively means you can get some dividend income tax free.

The dividend allowance does not reduce the amount of your taxable income. It is a nil rate band of tax for dividend income. The dividend allowance means that you do not need to pay any tax on the first £1,000 of dividend income that you receive.

You only have to pay income tax on dividend income that exceeds your dividend allowance. You pay income tax on the excess dividends at the dividend rates.

Income that is covered by your dividend allowance still counts as taxable income and therefore still uses up your basic rate band or your higher rate band of tax. This can affect the rate of tax you pay on dividend income that exceeds your allowance. It can also affect the level of the personal savings allowance you can get.

There is information about the dividend allowance, including some simple examples, in the guidance on GOV.UK.

There is information about both the dividend allowance and the personal savings allowance (see above) in our page on savings income. The guidance contains examples that explain how these two allowances interact and how they interact with the starting rate for savings.

More information and examples

What if my only taxable income is savings income?

If you have no taxable earned income and all your income is taxable savings income, you will get your personal allowance against part of your income. The next part of your income that falls within the starting rate for savings band will be taxed at 0%, meaning no tax will be due on that part of your income. The next part of your savings income will fall within the personal savings allowance, meaning that it will also be taxed at 0%. The balance of your income that exceeds the starting rate band and the personal savings allowance will be taxed at the basic rate of 20%.

The example Thomas part 2 shows how this works.

What if my earned income and other non-savings, non-dividend income is above the upper limit for the starting rate for savings?

If your taxable non-savings, non-dividend or earned income is more than the upper limits for the starting rate for savings the starting rate for savings will not be available. The first part of your savings income will fall within the personal savings allowance. The balance of your savings income will be taxed in full at 20%.

The example Thomas part 3 shows how this works.

What if my earned income and other non-savings, non-dividend income is less than my tax allowances?

If your taxable earned income and other non-savings, non-dividend income is below your tax allowances, you will be able to set some of your tax allowances against your savings income.

Any savings income that exceeds your tax allowances will be taxed at the starting rate for savings of 0% to the extent that it falls within the starting rate band – no tax will be due on this savings income. The balance of your savings income that exceeds the starting rate band will firstly fall within the personal savings allowance – no tax will be due on this savings income. The balance that exceeds the personal savings allowance will be taxed at the basic rate of 20%.

Before 6 April 2016, banks and building societies deducted tax at 20% before crediting savings income or interest to your account. From 6 April 2016 onwards, banks and building societies do not deduct tax from your interest – you receive savings interest gross. However, some forms of savings income continue to have tax deducted at source, such as the interest element of PPI pay-outs.

If some of your savings income is liable to income tax, you will need to tell HM Revenue & Customs (HMRC), so that they can collect the tax that is due. HMRC normally collect the tax through your tax code or through Self Assessment.

The example Thomas part 4 shows how this works.

What if my earned income and other non-savings, non-dividend income falls between the lower and upper limits for the starting rate for savings?

If you have used up your tax allowances against your earned income and other non-savings, non-dividend income, but your remaining non-savings, non-dividend income is less than the upper limit of the starting rate band, you can use the balance of the starting rate band against your taxable savings income. This means that the starting rate for savings will apply to some of your taxable savings income. You will then be able to use your personal savings allowance against your savings income, meaning that it is taxed at 0%. You are then taxed on the balance of your taxable savings income at the basic rate of 20%.

The examples Thomas part 5 and Thomas part 6 show how this works.

What if I have savings income and dividend income?

If you have savings income and dividend income, you may need to make use of both the personal savings allowance and the dividend allowance.

You will need to look at your total income (including dividends) to work out what level of personal savings allowance you have.

The examples Thomas part 7, Thomas part 8 and Thomas part 9 show how this works.

Examples

Thomas part 1

Thomas, born in 1954, works part time and gets wages of £12,900 a year. He is not eligible for the blind person’s allowance. He also has a pension from his old job of £6,000 a year. He has no other income. Thomas's tax is worked out like this:

Thomas part 2

Looking at Thomas again but now he has only £18,900 of savings income rather than earned income. His tax will be worked out differently:

Thomas has no earned income and he has not used up any of his starting rate for savings tax band so he will be taxed up to the limit of £5,000 at 0%. The next £1,000 will fall within his personal savings allowance of £1,000 and also be taxed at the rate of 0%. The balance of £330 will be taxed at the 20% basic rate.

Thomas will have to make sure that HMRC know that he has savings income on which he will have to pay tax. As Thomas does not have any earned income, HMRC will have to collect the tax through a direct demand for payment (Simple Assessment) or through Self Assessment, by asking Thomas to complete a tax return.

Thomas part 3

In this example, Thomas has earnings of £17,700 and savings income of £1,200. His earned income is more than the upper limit of £17,570, which is the personal allowance of £12,570 plus the starting rate band of £5,000. So, £1,000 of his savings income falls within his personal savings allowance and is taxed at 0%. He is taxed on the balance of £200 savings at the 20% basic rate. His tax will be worked out as follows:

Thomas part 4

Thomas has total taxable income of £18,900, made up of £10,900 wages and £8,000 savings interest.

Earned income uses £10,900 of Thomas's personal allowance of £12,570, leaving £1,670 to go against his savings income. This means only £6,330 of his savings income is liable to tax.

His tax can be worked out as follows:

Thomas part 5

Thomas has total taxable income of £18,900, made up of £13,100 wages and £5,800 savings.

His tax can be worked out as follows:

Of the £5,000 starting rate for savings band, £530 has been used up by the earned income above his personal allowance, so £4,470 remains for Thomas to use for his savings income:

Thomas part 6

Thomas has total taxable income of £18,900, made up of £7,300 wages and £11,600 savings.

His tax can be worked out as follows:

Thomas part 7

Thomas has total taxable income of £18,900, made up of £16,500 wages and £1,400 savings and £1,000 dividends.

His tax can be worked out as follows:

Of the £5,000 starting rate for savings band, £3,930 has been used up by the earned income above his personal allowance, so £1,070 remains for Thomas to use for his savings income; in addition, since Thomas’s income (£18,900) all falls within the basic rate band, he is entitled to the £1,000 personal savings allowance. Thomas also has a £1,000 dividend allowance:

Thomas part 8

Thomas has total taxable income of £28,900, made up of £21,500 wages and £1,400 savings and £6,000 dividends.

His tax can be worked out as follows:

All of the £5,000 starting rate for savings band has been used up by the earned income above his personal allowance. Since Thomas’s income (£28,900) all falls within the basic rate band, he is entitled to the £1,000 personal savings allowance. Thomas also has a £1,000 dividend allowance:

Thomas will have to make sure that HMRC know that he has both savings and dividend income on which he will have to pay tax. HMRC will probably collect the tax through Thomas’s PAYE code or through Self Assessment, by asking Thomas to complete a tax return.

Thomas part 9

Thomas has total taxable income of £51,900, made up of £44,500 wages and £1,400 savings and £6,000 dividends.

His tax can be worked out as follows:

All of the £5,000 starting rate for savings band has been used up by the earned income above his personal allowance. Since some of Thomas’s income (£51,900) falls within the higher rate band, he is only entitled to the £500 personal savings allowance. Thomas also has a £1,000 dividend allowance. Note also that the basic rate band is £37,700; Thomas’s earned income has used £31,930 of this band, leaving £5,770 for the savings and dividend income:

Note that some of the dividend income exceeding the dividend allowance is taxable at the higher rate. This is because the income that falls within the personal savings allowance and the dividend allowance still uses up the basic rate band.