Income Tax Act 2007

Chapter 2Rates at which income tax is charged

The rates

6The starting rate, basic rate and higher rate

(1)The main rates at which income tax is charged are—

(a)the starting rate,

(b)the basic rate, and

(c)the higher rate.

(2)The starting rate, basic rate and higher rate for a tax year are the rates determined as such by Parliament for the tax year.

(3)For other rates at which income tax is charged see—

(a)section 7 (savings rate),

(b)section 8 (dividend ordinary rate and dividend upper rate), and

(c)section 9 (trust rate and dividend trust rate).

7The savings rate

The savings rate is 20%.

8The dividend ordinary rate and dividend upper rate

(1)The dividend ordinary rate is 10%.

(2)The dividend upper rate is 32.5%.

9The trust rate and dividend trust rate

(1)The trust rate is 40%.

(2)The dividend trust rate is 32.5%.

Income charged at particular rates

10Income charged at the starting, basic and higher rates: individuals

(1)Income tax is charged at the starting rate on an individual’s income up to the starting rate limit.

(2)Income tax is charged at the basic rate on an individual’s income above the starting rate limit and up to the basic rate limit.

(3)Income tax is charged at the higher rate on an individual’s income above the basic rate limit.

(4)This section is subject to—

• section 12 (income charged at the savings rate),

• section 13 (income charged at the dividend ordinary and dividend upper rates: individuals), and

• any other provisions of the Income Tax Acts which provide for income of an individual to be charged at different rates of income tax in some circumstances.

(5)See section 20 for the starting rate limit and the basic rate limit.

11Income charged at the basic rate: other persons

(1)Income tax is charged at the basic rate on the income of persons other than individuals.

(2)This section is subject to—

• section 12 (income charged at the savings rate),

• section 14 (income charged at the dividend ordinary rate: other persons),

• Chapters 3 to 6 of Part 9 (which provide for some income of trustees to be charged at the dividend trust rate or at the trust rate), and

• any other provisions of the Income Tax Acts which provide for income of persons other than individuals to be charged at different rates of income tax in some circumstances.

12Income charged at the savings rate

(1)Income tax is charged at the savings rate on a person’s income which—

(a)is savings income, and

(b)would otherwise be charged at the basic rate.

(2)This is subject to—

• Chapters 3 to 6 of Part 9 (which provide for some income of trustees to be charged at the dividend trust rate or at the trust rate),

• section 504(3) (treatment of income of unauthorised unit trust), and

• any other provisions of the Income Tax Acts (apart from sections 10 and 11) which provide for income to be charged at different rates of income tax in some circumstances.

(3)Section 16 has effect for determining the extent to which a person’s savings income would otherwise be charged at the basic rate.

13Income charged at the dividend ordinary and dividend upper rates: individuals

(1)Income tax is charged at the dividend ordinary rate on an individual’s income which—

(a)is dividend income,

(b)would otherwise be charged at the starting or basic rate, and

(c)is not relevant foreign income charged in accordance with section 832 of ITTOIA 2005 (relevant foreign income charged on the remittance basis).

(2)Income tax is charged at the dividend upper rate on an individual’s income which—

(a)is dividend income, and

(b)would otherwise be charged at the higher rate.

(3)Subsections (1) and (2) are subject to any provisions of the Income Tax Acts (apart from section 10) which provide for income to be charged at different rates of income tax in some circumstances.

(4)Section 16 has effect for determining the extent to which an individual’s dividend income would otherwise be charged at the starting, basic or higher rate.

14Income charged at the dividend ordinary rate: other persons

(1)Income tax is charged at the dividend ordinary rate on the income of persons other than individuals which—

(a)is dividend income,

(b)would otherwise be charged at the basic rate, and

(c)is not relevant foreign income charged in accordance with section 832 of ITTOIA 2005 (relevant foreign income charged on the remittance basis).

(2)This is subject to—

• Chapters 3 to 6 of Part 9 (which provide for some income of trustees to be charged at the dividend trust rate or at the trust rate),

• section 504(3) (treatment of income of unauthorised unit trust), and

• any other provisions of the Income Tax Acts (apart from section 11) which provide for income of persons other than individuals to be charged at different rates of income tax in some circumstances.

15Income charged at the trust rate and the dividend trust rate

For the circumstances in which income tax is charged at the trust rate and the dividend trust rate, see Chapters 3 to 6 of Part 9.

16Savings and dividend income to be treated as highest part of total income

(1)This section has effect for determining the rate at which income tax would be charged on a person’s savings or dividend income apart from sections 12 and 13.

(2)It also has effect for all other income tax purposes except for the purposes of—

(a)section 491 (special rates not to apply to first slice of trustees' trust rate income), and

(b)sections 535 to 537 of ITTOIA 2005 (gains from contracts for life insurance etc: top slicing relief).

(3)If a person has savings income but no dividend income, the savings income is treated as the highest part of the person’s total income.

(4)If a person has dividend income but no savings income, the dividend income is treated as the highest part of the person’s total income.

(5)If a person has both savings income and dividend income—

(a)the savings income and dividend income are together treated as the highest part of the person’s total income, and

(b)the dividend income is treated as the higher part of that part of the person’s total income.

(6)See section 1012 for the relationship between—

(a)the rules in this section, and

(b)other rules requiring particular income to be treated as the highest part of a person’s total income.

(7)References in this section to dividend income do not include dividend income which is relevant foreign income charged in accordance with section 832 of ITTOIA 2005 (relevant foreign income charged on the remittance basis).

17Repayment: tax paid at basic rate instead of starting or savings rate

(1)This section applies if income tax at the basic rate has been paid on income on which income tax is chargeable at the starting or savings rate.

(2)If a claim is made, any necessary repayment of tax must be made.

18Meaning of “savings income”

(1)This section applies for the purposes of the Income Tax Acts.

(2)“Savings income” is income—

(a)which is within subsection (3) or (4), and

(b)which is not relevant foreign income charged in accordance with section 832 of ITTOIA 2005 (relevant foreign income charged on the remittance basis).

(3)Income is within this subsection if it is—

(a)income chargeable under Chapter 2 of Part 4 of ITTOIA 2005 (interest),

(b)income chargeable under Chapter 7 of Part 4 of ITTOIA 2005 (purchased life annuity payments), other than income from annuities specified in section 718(2) of that Act (annuities purchased from certain life assurance premium payments or under wills etc),

(c)income chargeable under Chapter 8 of Part 4 of ITTOIA 2005 (profits from deeply discounted securities), or

(d)income chargeable under Chapter 2 of Part 12 of this Act (accrued income profits).

(4)Income is within this subsection if—

(a)it is chargeable under Chapter 9 of Part 4 of ITTOIA 2005 (gains from contracts for life insurance etc), and

(b)an individual is, or personal representatives are, liable for income tax on it (under section 465 or 466 of that Act).

19Meaning of “dividend income”

(1)This section applies for the purposes of the Income Tax Acts.

(2)“Dividend income” is income which is—

(a)chargeable under Chapter 3 of Part 4 of ITTOIA 2005 (dividends etc from UK resident companies),

(b)chargeable under Chapter 4 of that Part (dividends from non-UK resident companies),

(c)chargeable under Chapter 5 of that Part (stock dividends from UK resident companies),

(d)chargeable under Chapter 6 of that Part (release of loan to participator in close company), or

(e)a relevant foreign distribution chargeable under Chapter 8 of Part 5 of ITTOIA 2005 (income not otherwise charged).

(3)In subsection (2) “relevant foreign distribution” means a distribution of a non-UK resident company which—

(a)is not chargeable under Chapter 4 of Part 4 of ITTOIA 2005, but

(b)would be chargeable under Chapter 3 of that Part if the company were UK resident.

Starting rate limit and basic rate limit

20The starting rate limit and the basic rate limit

(1)The starting rate limit is £2,150.

(2)The basic rate limit is £33,300.

(3)The basic rate limit is increased in some circumstances: see—

(a)section 414(2) (gift aid relief), and

(b)section 192(4) of FA 2004 (relief for pension contributions).

21Indexation of the starting rate limit and the basic rate limit

(1)This section applies if the retail prices index for the September before the start of a tax year is higher than it was for the previous September.

(2)The starting rate limit for the tax year is the amount found as follows.

• Step 1

  Increase the starting rate limit for the previous tax year by the same percentage as the percentage increase in the retail prices index.

• Step 2

  If the result of Step 1 is a multiple of £10, it is the starting rate limit for the tax year.

  If the result of Step 1 is not a multiple of £10, round it up to the nearest amount which is a multiple of £10.

  That amount is the starting rate limit for the tax year.

(3)The basic rate limit for the tax year is the amount found as follows.

• Step 1

  Increase the basic rate limit for the previous tax year by the same percentage as the percentage increase in the retail prices index.

• Step 2

  If the result of Step 1 is a multiple of £100, it is the basic rate limit for the tax year.

  If the result of Step 1 is not a multiple of £100, round it up to the nearest amount which is a multiple of £100.

  That amount is the basic rate limit for the tax year.

(4)Subsections (2) and (3) do not require a change to be made in the amounts deductible or repayable under PAYE regulations during the period beginning on 6 April and ending on 17 May in the tax year.

(5)Before the start of the tax year the Treasury must make an order replacing the amounts specified in section 20 with the amounts which, as a result of subsections (2) and (3), are the starting rate limit and the basic rate limit for the tax year.