Additional Higher Rate of Income Tax Print

The additional higher rate of income tax for both 2017/18, and 2018/19 is 45%.  This rate applies to individuals and certain trusts.

For individuals, the 45% rate is charged on taxable income in excess of £150,000. The rate of tax on dividend income for 2017/18, and 2018/19 is 38.1% on income over the £150,000 limit.

The method of calculating tax on dividends was changed for 2016/17 and subsequent years. (See section on Dividends)

Example:

Michael has a salary of £125,000 for 2017/18. He also receives gross interest of £2,050, and a dividend of £100,000. His income tax liability for 2017/18 is as follows:

£
Salary 125,000
Interest 2,050
Dividends 100,000
238,673
Tax Thereon:
First £33,500 20% 6,700
Next   93,550 (£125,000 + 2,050 – 33,500) 40% 37,420
Next     5,000 0% 0
Next   17,950  [£150,000 – (33,500 + 95,550+5,000)] 32.5% 5,834
 Next   88,673  (238,673 – 150,000)  38.1% 33,784
 83,738
Less Tax deducted at source
PAYE* (43,300)
Tax Payable  40,438

*PAYE has been based on the amount payable after the withdrawal of the personal allowance.

The rate applicable to trusts (“RAT”) for 2017/18 is 45%. For dividend income the RAT is 38.1%. All forms of discretionary trusts are liable to pay income tax at the RAT. There is no dividend allowance for trusts.

The first £1,000 of trust income is charged at the start-rate of 20% to exclude the smallest trusts from the higher rates of tax. Where the Settlor has created more than one trust, this start rate is divided between these connected trusts, but is subject to a de-minimis limit of £200 per trust.

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