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Where Taxpayers and Advisers Meet

What is Basic Rate Limit ?

NonDom41
Posts: 47
Joined: Tue Nov 28, 2017 3:03 pm

What is Basic Rate Limit ?

Postby NonDom41 » Thu Apr 30, 2020 1:26 pm

The UK-income tax rules are quite simple and I have no problems in understanding them :

Band Taxable income Tax rate
Personal Allowance Up to £12,500 0%
Basic rate £12,501 to £50,000 20%
Higher rate £50,001 to £150,000 40%

However, what on earth is the sometimes mentioned Basic Rate Limit of GBP 37,500 ?

etf
Posts: 683
Joined: Mon Nov 02, 2009 5:25 pm

Re: What is Basic Rate Limit ?

Postby etf » Thu Apr 30, 2020 1:38 pm

£50,000 less £12,500 personal allowance. Once you calculated your taxable income (broadly income less personal allowance) you apply the following tax bands :

Basic rate £0-£37,500-20%
Higher rate £37,501-£150,000-40%
Additional rate £150,000+ -45%

The above can get more complicated, but hopefully it explains where the £37,500 comes from.

maths
Posts: 7947
Joined: Wed Aug 06, 2008 3:25 pm

Re: What is Basic Rate Limit ?

Postby maths » Thu Apr 30, 2020 2:42 pm

Just to add to etf, the basic limit refers to taxable income which up to that figure (£37,500 for 19/20 tax year) is taxed at the basic rate 20%.

For taxable income above that figure the higher and additional rates (40% and 45%) apply.

For the technically minded, see ITA 2007 ss 6(1)(b) and 10 and FA 2019 s 5(1).

NonDom41
Posts: 47
Joined: Tue Nov 28, 2017 3:03 pm

Re: What is Basic Rate Limit ?

Postby NonDom41 » Thu Apr 30, 2020 5:22 pm

Thank you both for the explanation.

If I am understanding correctly :

If someone earns GBP 60,000 e.g., he deducts the 12,500 allowance first, leaving GBP 47,500 taxable amount. Then he has to pay GBP 7,500 ( 20% for the Basic rate limit 37,500) and 40% for the remaining GBP 10,000 which is GBP 4,000.

His total income tax for the original GBP 60,000 is GBP 11,500.

Is this correct ?

robbob
Posts: 2972
Joined: Wed Aug 06, 2008 4:01 pm

Re: What is Basic Rate Limit ?

Postby robbob » Thu Apr 30, 2020 5:58 pm

His total income tax for the original GBP 60,000 is GBP 11,500.
Yes - presuming they are bog standard type person - examples of non bog standard is someone whose partner has claimed child benefit in the same tax year.

NonDom41
Posts: 47
Joined: Tue Nov 28, 2017 3:03 pm

Re: What is Basic Rate Limit ?

Postby NonDom41 » Thu Apr 30, 2020 10:11 pm

Thank you. Yes, we are talking about a bog standard type person.


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