Income tax (UK)

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Planned share of tax revenue for the 2008–2009 tax year, based on the 2008 state budget

Income tax is a centrally levied direct tax (Her Majesty's Revenue and Customs) in the United Kingdom of Great Britain and Northern Ireland . It affects individuals and, prior to the introduction of corporation tax, also affected companies. Income tax makes up the bulk of UK public revenue. The second largest share of this income is made up of National Insurance Contributions . The third largest public source of revenue VAT (value added tax, VAT) and the fourth largest is the corporate income tax (corporation tax).


William Pitt the Younger

An income tax (Income Tax) in the United Kingdom (UK) was first used by William Pitt the Younger introduced in its national budget in December 1798 for weapons and equipment in preparation for the Napoleonic wars to pay. Pitt's new progressive income tax started at 2 old pence per pound (1/120) on incomes over £ 60 and rose to a maximum of 2 shillings per pound (1/10) on incomes over £ 200. Pitt was hoping the new income tax would bring in £ 10 million, but the actual income added up to just £ 6 million.

Income tax was levied on five types of income , and income that did not fall into one of these categories was not taxed either. These types of income were:

  • Table A (UK property income tax)
  • Table B (tax on business property acquisition)
  • Table C (Tax on Government Debt Income)
  • Table D (Taxes on Commercial, Academic and Spiritual Income, Interest, Overseas Income, and Occasional Income)
  • Table E (Tax on income from an employment relationship)

A sixth category was later added, Table F for UK dividend income tax.

Pitt's income tax was levied from 1799 to 1802. Then it was abolished by Henry Addington during the Peace of Amiens . Addington was Prime Minister from 1801 after Pitt's resignation . Income tax was reintroduced in 1803 when hostilities resumed, but it was abolished in 1816 - a year after the Battle of Waterloo . The Income Tax Act of 1842 under Sir Robert Peel reintroduced income tax. As a conservative, Peel had campaigned against income tax in the 1841 election, but a growing budget deficit required new funds. The new income tax, based on Addington's model, was levied on incomes over £ 150.

UK income tax has changed over time. It originally taxed personal income regardless of whether or not someone actually benefited from the income, but now someone owes a tax only if the income is beneficial and legitimate. Most companies were spun off in 1965 from the income tax system, as the corporation was introduced (Corporation Tax). These changes had come into effect with the corresponding tax laws (Income and Corporation Taxes Act 1970). The tables that were previously valid and broken down by type of income have also changed. Table B was abolished in 1988, Table C likewise in 1996 and Table E followed in 2003. The remaining tables were superseded for income tax purposes by the Income Tax (Trading and Other Income) Act 2005, the Table F was also kept entirely. The old system with tables A and D is still in effect for corporation tax. The top tax rate peaked at 99.25% during World War II and remained at around 95% until the late 1970s.

In 1974 the top tax rate increased to 83%, the highest after the war. It was applied to income over £ 20,000 and, when combined with a 15% surcharge on so-called “undeserved” income (investments and dividends), could add up to a marginal tax rate of 98%. In 1974 this marginal tax rate affected around 750,000 people. Margaret Thatcher , who favored indirect taxes , reduced income tax rates during the 1980s. In the first state budget since their election victory in 1979, the top tax rate was reduced from 83% to 60% and the starting tax rate from 33% to 30%. The basic tax rate was then reduced to 29%, 27% and finally 25% between 1986 and 1988. The top tax rate was also limited to 40% in 1988.

Ordinary residence and legal residence

Income earned in the UK is generally subject to UK tax, regardless of nationality, habitual residence of the person or the legal seat of the company.

For an individual who is neither actually nor legally resident in the UK (residence and domicile), this means that the income tax liability is limited to the amount of tax deducted as withholding tax from the income earned in the UK. This applies together with the tax on income from a permanent business or professional activity in the UK and the tax on rental or lease income from property in the UK.

Individuals who are both ordinarily resident and legally resident in the UK are also liable to tax on their worldwide income. For people with habitual residence but without civil law residence in the UK (called "non-dom"), foreign income has historically been taxed on a remittance basis, i.e. only income transferred to the UK is taxed (for such People sometimes refer to the UK as a "tax haven". As of April 6, 2008, however, a long-term “non-dom” (with seven years of residence within the last nine years) who wishes to maintain the “referral base” must pay an annual tax of £ 30,000.

Civil-legal residence (domicile) is an expression with technical meaning. Very roughly (with reasonable simplification) a person is domiciled in the UK if he or she was born there or if the UK is their permanent residence; this does not apply if he or she was born outside and does not intend to stay permanently.

Double taxation of income, by an appropriate double tax treaty be avoided (double tax treaty) - The UK has a dense network of treaties with many countries.

Examples of non-dom status

Since the “domicile rule” of Great Britain allows one to live in the UK without being “domiciled” there and therefore not paying any taxes, around 60,000 “non-doms” lived mainly in London around 2010 - among them the super-rich Indian steel tycoon Lakshmi Mittal , Russian and Ukrainian oligarchs, Saudi princes and Greek shipowners, international music artists, top managers, bankers, lawyers and business people who travel a lot, such as Sussex-born Michael Ashcroft , deputy chairman of the ruling Conservative Party, who in the tax haven and British ex-colony Belize made a billion fortune. But "Henwees" from all over the world use these loopholes ("Henwees" stands for "High Net Worth Individuals" - people with a high net worth) and use the non-Dom status, with reference to the 300,000 Russians who live in London , is also spoken of "Londongrad".

Most foreign workers (including those from the EU) would actually be classified as non-doms. However, since the relevant tax exemption has only been applied to income earned outside the UK, the majority of wealthy people have benefited from this tax exemption, whose income comes mainly from abroad.

Tax year

The tax year or fiscal year is the assessment period . For income tax, it begins on April 6 of each year and ends on April 5 of the following year. For the year 2009, for example, it lasted from April 6, 2009 to April 5, 2010.

The crooked dates are based on events in the mid-18th century. The English "quarter days" are traditionally used to collect rents and leases. The tax system was also based on this data, with the tax year ending on “ Lady Day ” (March 25, the day of the Virgin Mary). When the Gregorian calendar replaced the Julian calendar in September 1752 , there was a difference of 11 days between the two. However, it was unacceptable for the tax authorities to lose tax revenue for 11 days. The beginning of the tax year was postponed, first to April 5th and then in 1800 to April 6th.

Tax rates

UK income tax and government insurance contributions (2010-2011).
UK Income Tax and Government Insurance as a Percentage of Taxable Income 2010-2011.

Every taxable person has a personal allowance , and income up to this amount in the tax year is tax-free for everyone. For 2019-2020 this allowance is £ 12,500 in England, Northern Ireland and Wales. A taxable person with an income of £ 125,000 or more does not receive an allowance.

Above this amount there are a number of tariff zones with different marginal tax rates. The following table shows the values ​​for the 2019-2020 tax year:

Type of
marginal tax rate
Income from

Interest income
Other income
(above all allowances)
n / A 10% n / A £ 0 ... £ 2,440
(only applies if
total income falls within this range)
Base rate
(basic rate)
10% 20% 20% £ 12,501 ... £ 50,000
32.5% 40% 45% from £ 50,001
n / A 50% 50% from £ 150,000

Income tax rates in Scotland are different from those in the remaining three UK countries (tax year 2019-2020):

Type of
tax rate
tax rate Zone
(personal allowance)
0% £ 12,500
Entry rate

(starter rate)

19% £ 12,501-14,549
Base rate
(basic rate)
20% £ 14,550-24,944
Intermediate block
(intermediate rate)
21% £ 24,945-43,430
41% £ 43,431-150,000
Highest rate
(top rate)
46% from £ 150,001

The taxpayer's income is assessed according to a prescribed sequence, whereby income from an employment relationship is taxed first, taking into account the personal allowance, followed by income from savings (interest or other unearned capital income) and then dividends.

Individual evidence

  1. IFS: Long-Term trends in British Taxation and Spending (PDF; 572 kB)
  2. ^ Thatcher Economics
  3. 1979 budget
  4. 1988 budget
  5. Residence and domicile: Frequently Asked Questions (FAQs)
  6. ^ Residence, Domicile and the Remittance Basis: Operational changes
  7. Hans-Lothar Merten: Tax evasion: The billion dollar business with black money. An insider unpacks. Linde Verlag, 2012, ISBN 978-3-7093-0481-5 , p. 115.
  8. ^ Mark Hollingsworth, Stewart Lansley: Londongrad: From Russia with Cash; The Inside Story of the Oligarchs. Fourth Estate, 2009, ISBN 978-0-00-727886-2 .
  9. a b c Income Tax rates and Personal Allowances. Retrieved December 7, 2019 .
  10. ^ Income Tax in Scotland. Retrieved December 7, 2019 .