Understanding taxes is something that many people leave to the experts. With different sets of rules for employees and for the self-employed and so many different tax brackets it can be a headache knowing how much you will get paid. So, if you are wondering “How do I work out how much tax to pay” read on. As an employee tax will be deducted from your wages. But it’s still extremely handy to know just how much will be deducted and how much to expect in your pay packet each month.
How do I Work Out How Much Tax to Pay : Different Sources of Income
The amount of tax you pay on income depends on its source. You generally don’t pay any tax on your first slice of income. This is known as your personal allowance and is the first income you receive in the tax year. For the year 2017 to 2018 this is set at 11,500 pounds. If your income exceeds this figure you will pay tax on the rest.
As well as paying tax on your income you can also expect to pay tax on property, dividends, property, inheritance, and capital gains. Income from pensions, employment, and property is classed as non-savings income. There are currently three different rates, the rate you pay depending on the amount of income you have. For those who have a taxable income less than 33,500 pounds the rate is 20%. As your income grows, so does the amount of tax you pay.
How do I Work Out How Much Tax To Pay : Changes in Tax Deductions
Tax is no longer deducted by your building society or bank. Interest is now paid gross. Depending on the amount of gross interest you have, tax will then be collected through a self-assessment tax return. If you are unsure how these changes will affect you, contact us here at McManus Williams. We are here to help.
How do I Work Out How Much Tax To Pay : Dividends
A new dividend allowance has been available since 6th April 2016. Since this date, the first 5000 pounds of money you receive in dividends from investments is tax-free. Above this figure a basic rate of tax of 7.5% is chargeable. This rises steeply depending on your income on dividends and can be as much as 38.1%. For the tax year 2018-19 the dividends allowance will be reduced to 2000 pounds.
Capital Gains Tax
For the current tax year 2017-18, capital gains tax is only payable when your gains are in excess of 11,300 pounds. Above this amount, rates are 10 and 20% depending on if you are a basic rate or higher-rate taxpayer. Lastly, inheritance tax applies to estates with a value of more than 325,000 pounds. This level is set to remain the same until at least 2019.
For more information on taxes and to work out just how much you will pay on your earnings, dividends, capital gains, or your inheritance, contact us here at our Portishead Accounting Office.