To start, anyone earning an annual salary under £100,000 is tax exempt for their first £6,475 earned. This is called your “Personal Allowance,” and for those earning above £100,000, this allowance will be reduced £1 for every £2 you earn above £100,000.
Senior citizens aged 65-74 years and earning less than £100,000 per year will receive a higher personal allowance of £9,490. For age 75 and over, the personal allowance is £9,640. However, no age category is exempt from the limitation imposed on salaries above £100,000, discussed above.
With regard to your income tax rate as of the 2010-11 tax year:
– the basic rate applied to annual income up to £37,400 is 20%
– the higher rate applied to annual income from £37,401-£150,000 is 40%
– the additional rate applied to annual income above £150,000 is 50%
Recall from my earlier post on American expats having to pay US taxes that, if you’re moving to London from America, you will receive a refund for the difference between a higher UK tax rate. Canadians moving to England likewise enjoy a tax treaty with the UK that protects them from a double taxation. It’s my understanding that only U.S. and Liberian citizens still pay taxes to their nation of origin while living in the UK from a different country (please do correct me if I’m wrong! It happens :)), but do consult your respective government’s revenue agency for their policies regarding taxation abroad to be certain.
Stay posted for more in this series on UK taxation if you’re relocating to London and want to plan your finances accordingly!