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Basic tax rate

The basic tax rate (BR) is the rate of Income Tax that you pay when you earn between £12,501 and £50,000. This rate is accurate as of the 2020/21 tax year

How much is the basic tax rate?

If you pay BR tax, you’re liable to pay 20% Income Tax in England and Wales. 

How does it work?

You only pay tax on your taxable income. Yes, it sounds obvious, but it can be a little confusing at first. Take a look at the current rates of Income Tax:

Income Tax rate
Up to £12,500 0% Personal allowance
£12,501 to £50,000 20% Basic rate
£50,000 to £150,000 40% Higher rate
over £150,000 45% Additional rate

Let’s look at an example:

  • If you earn £30,000, you owe 20% on £17,499 of your income
  • If you earn £55,000, you owe 20% on £37,499; 40% on £5,000

Basically, it’s important to remember that you often don’t owe the above tax rates on your income as a whole. It’s only the portion of your income that falls into certain tax brackets. So if you earn, say, £155,000, you’ll be taxed at three different rates: the basic rate, the higher rate and the additional rate.

I earn £155,000 – how am I taxed?
£50,000 20%
£100,000 40%
£5,000 45%

What’s the Personal Allowance?

The Personal Allowance is the income that you can earn tax-free in the UK. That means that when you earn less than £12,500, you aren’t liable to pay Income Tax. You may also be wondering why the Personal Allowance is missing from the above table. That’s because when you earn £100,000 and more, you gradually start to lose your tax-free Personal Allowance, pound by pound. 

When you earn more than £125,000, you lose your entitlement to the Personal Allowance entirely.

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