Last Updated: 7th September, 2020
Guest Posted: Richie N.
Marginal Tax Rate – UK
The marginal tax rate is the percentage of tax applied to your income for each tax bracket in which you qualify. In essence, the marginal tax rate is the percentage taken from your next Pound/Euro/Dollar of taxable income above a pre-defined income threshold.
In the UK, when you look at income tax bands, it appears that the calculation is based on Marginal Tax Rate. For example, lower earners pay no tax, then the rate starts at 20%, growing to 40% for higher rate taxpayers. For each pound that a contractor earns over £150,000, the marginal rate becomes 45%, so higher earners pay more tax.
What are the Tax Rates in UK in 2020
Below are the UK income tax rates and brackets for 2019-2020?
|Tax Rate (Band)||Taxable Income||Tax Rate|
|Personal allowance||Up to £12,500||0%|
|Basic rate||£12,501 to £50,000||20%|
|Higher rate||£50,001 to £150,000||40%|
|Additional rate||Over £150,000||45%|
What are the taxes for expats in the UK?
Tax rules for non-UK residents
Here, we explain some of the basics about taxes in the UK. Tax rules can be extremely complicated so it’s vital to seek expert advice if you’re not sure which taxes you’re liable for, or how much you’ll have to pay.
What is a UK resident?
You’re considered a UK resident for tax purposes if you spend at least 183 days in the UK each tax year, or if your only home is in the UK. You must have owned, rented or lived in it for a minimum of 91 days and spent at least 30 days there in the tax year.
If you’re deemed to be a UK resident once you move to the UK, you’ll pay UK tax on your income, whether you receive it in the UK or abroad.
UK personal allowance
If you are a UK resident, you’ll be entitled to a personal allowance, which is the amount you can earn each tax year without paying income tax. In the 2019/20 tax year, the personal allowance is £12,500. Earnings above this amount (up to £50,000) are taxed at the basic rate of UK income tax: 20%. Income between £50,001 and £150,000 is taxed at 40%, while income above £150,000 is taxed at 45%.
You may end up being taxed twice on the same income or gains unless your country has a double-taxation agreement with the UK.
Tax rules for non-residents
If you’re a non-resident, you’ll pay tax on your UK income but not on any foreign income.
You’re considered a non-resident if you spent less than 16 days in the UK in the tax year, or fewer than 46 days if you haven’t been classed as a UK resident for the previous three tax years. You’ll also be considered non-resident if you work abroad full-time and spent fewer than 91 days in the UK. Of these 91 days, no more than 30 can be spent working.
There are special rules for UK residents whose permanent home, or domicile, is abroad. For tax purposes, for example, domicile determines a person’s liability to inheritance tax, which is charged at 40% on the value of your estate over the current £325,000 IHT threshold.
Domiciled in the UK
If you are domiciled in the UK, you may be liable to UK inheritance tax (IHT) on your worldwide assets. However, if you’re not domiciled in the UK, you’ll only be liable for IHT on any UK assets.
Understanding whether you are domiciled or resident in the UK is not always straightforward, so you should ask for advice from a qualified tax adviser if you’re not sure.