As the 2021/22 tax year covering the period 6 April 2021 to 5 April 2022 has now begun there are changes which came into effect from a personal tax perspective. In a series of blogs we will be providing a summary of some of the changes, starting with the personal allowance and marriage allowance.

What is the Personal Tax Allowance?

The personal allowance has increased to £12,570, an increase of £70 from the 2020/21 tax year (£12,500). This means the first £12,570 of income is tax free and for those basic rate taxpayers this will lead to a reduction in tax of £14.

Where an individual has what is known as “adjusted net income” totalling over £100,000, the personal allowance is reduced by £1 in every £2. So there will be no entitlement to the personal allowance when adjusted net income exceeds £125,140.

What is the Marriage Tax Allowance?

It is possible for some couples where one spouse or civil partner’s income is below the personal allowance to transfer 10% of their personal allowance to their spouse or civil partner. This is only possible if the other spouse or civil partner’s income is taxed at the basic rate.

What are the current Income Tax Rate Bands?

The basic rate band has been increased to £37,700 (£37,500 in 2020/21) and this means individuals will not pay the higher rate of tax (40%) unless their income exceeds £50,270 (£50,000 in 2020/21). This is for individuals who are entitled to the personal allowance in full.

The 2021/22 tax rate bands are:

Taxable Income (after deducting the personal allowance) General Rate Dividend Rate
£1 to £37,700 20% 7.5%
£37,701 to £150,000 40% 32.5%
Over £150,00 45% 38.1%

 

With the changes to the personal allowance and rate bands, higher rate taxpayers will find themselves £68 better off over the course of the tax year. Additional rate taxpayers will see that they are £40 better off over the course of the tax year.

Scottish Taxpayers

There are five Scottish income tax rates which apply to Scottish taxpayers for income such as employment, self-employment and rental income. The rates range between 19% and 46%. Scottish taxpayers are entitled to the personal allowance and it is reduced when total adjusted net income is above £100,000.

The 2020/22 Scottish tax rate bands are:

Taxable Income Rate %
£1 – £2,097 Starter 19%
£2,098 – 12,726 Basic 20%
£12,727 – £31,092 Intermediate 21%
£31,093 – £150,000 Higher 41%
Over £150,000 Top 46%

 

For income from savings and dividends the rates are the same as the rest of the UK.

Welsh Taxpayers

Welsh taxpayers pay the same rates of income tax as taxpayers in England and Northern Ireland.

Student Loans

The Department for Education has confirmed that from 6 April 2021, the Plan 1 threshold increases to £19,895 (£19,390 in 2020/21) and the Plan 2 threshold to £27,295 (£26,575 in 2020/21). The rate of deduction for both plans remains at 9%.

If you are an employee your employer will deduct the student loan repayment from your employment income.

If you are self-employed then student loan repayments will be made via the self-assessment system through the completion of a tax return.

Postgraduate Master’s Loan and Postgraduate Doctoral Loan

A Postgraduate Master’s Loan is a loan to help individuals with course fees and living costs whilst studying the postgraduate master’s course. The repayment of this type of loan is treated exactly the same as any other Student Loan and interest is charged from the day you first get the loan.

The repayment of the loan begins when threshold income is above £21,000 for students in England and Wales and the rate of deduction is 6%. The rate is set at 9% for students in Scotland and Northern Ireland with income above £25,000.

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Author: Anthony Barron, Tax Manager, Plus Accounting

Any views or opinions represented in this blog are personal, belong solely to the blog owner and do not represent those of Plus Accounting. All content provided on this blog is for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site.

First Published: 30 May 2019

Last Updated: 05 November 2021