Anyone who earns an income is subject to paying income tax. This includes your salary or earnings as a landlord. But you do not need to pay income tax on all earned income – and how much you have to pay will depend on how much you earn.
How much can I earn before paying income tax?
Everyone in UK has a personal allowance which allows them to earn up to a certain amount before they start paying income tax. No matter where you live throughout the UK, you can earn £12,570 (in tax year 2021/22) without tax. In turn, the Personal Allowance is reduced by £1 for every £2 earned over £100,000. This is the same throughout the UK.
I’m retired. Does income tax affect my pension?
You won’t pay any income tax on your State Pension. However, the state pension will use some of your personal allowance. How? The full state pension within the UK is £9,339.20. If you are receiving this amount, this will mean that you only have £3,230.80 of your personal allowance remaining.
Remember, once you reach your personal allowance, you will begin paying tax on earned income depending on the amount you earn. So, if you’re working and in receipt of the state pension – you’ll need to find out how this will affect your take home pay.
Where you live will also change the amount of income tax you’ll need to pay. If you live in England rather than Scotland, the amount of income tax that you pay can vary significantly.
Is Scottish income tax higher than England?
If you live in Scotland and you earn £30,000 per annum your take home pay will be different in comparison to someone who lives in England. Here’s a breakdown for someone who lives in Scotland earning £30,000 per annum:
- Gross Income – £30,000
- Taxable Income – £17,430 (minus Personal Allowance)
- Tax Payable – £3,510.18
Income tax in Scotland vs England
If you live in England and you earn £30,000 per annum, your take home pay will be different in comparison to someone who lives in Scotland. Here’s the breakdown of pay for said individual living in England earning £30,000 per annum:
- Gross Income – £30,000
- Taxable Income – £17,430 (minus Personal Allowance)
- Tax Payable – £3,484.20
In this example, those who live in Scotland are £25.98 worse off each year versus those living in England.
Outlined below is a comparison between the amount of income tax in Scotland vs England. Please note, National Insurance Contributions are also paid on said earnings. However, for the purpose of this illustration we have only looked at Income Tax.
Scottish income tax rates and bands 2021/22
| Scottish income tax rates 2021/22 | Scottish income tax bands 2021/22* |
|---|---|
| Scottish Starter Rate – 19% | £12,571 – £14,667 (£2,097) |
| Scottish Basic Rate – 20% | £14,668 – £25,296 (£10,629) |
| Scottish Intermediate Rate – 21% | £25,297 – £43,662 (£18,366) |
| Scottish Higher Rate – 41% | £43,663 – £150,000 |
| Scottish Top Rate – 46% | Over £150,000 |
UK (excluding Scotland) income tax rates and bands 2021/22
| UK Income Tax Rates 2021/22 | UK Income Tax Rates Bonds* |
|---|---|
| Basic Rate – 20% | £12,570 to £50,270 |
| Higher Rate – 40% | £50,271 to £150,000 |
| Additional Rate – 45% | Over £150,000 |
* The bands assume the taxpayer is eligible for the UK-wide personal allowance for 2021/22 of £12,570. The personal allowance reduces by £1 for every £2 of income over £100,000. So, taxpayers with income of more than £125,140 do not have any personal allowance.
The Financial Conduct Authority does not regulate taxation advice.