Confused about tax brackets.

GregDixon

Hello everyone,

I have tried to make sense of the tax bands, but the more I read the more I am confusing myself. So I thought I would try asking you lovely folks for some clarification.

In August 2011 I began renting out my flat, completed the SA form and submitted it. HMRC wrote back saying I am receiving £1197 property income and have adjusted my tax code from 822L to 690L.

2011-12 year ended with a final tax code of 759L. I earned 27451.74 from my main job.

Since the start of this year I have been working overtime like crazy to bring down my mortgage, overpaying as much as I can afford each month. But now I am worried I will earn over 34k with the added property income and will move into the 40% tax bracket.

The rental income will cease in November and I will move back in myself then.

Does this mean I will pay 40% on everything I earn? That sounds scary, twice as much as I am currently paying, I think I would be better off trying to earn just below the 34k change?

But I really don't know what I am talking about, am I thinking it's worse than it really is ? Any help would be greatly appreciated.

Thank you.

CLAPTON

you pay 40% on the amount OVER 42,475 per annum
the 42,474 is make up of
8105 tax free plus 34,370 = 42,475

it not so scary anyway as currently your marginal deductions are 20% (tax) plus 12% (NI) i.e. 32% in total (or 41% if paying a student loan)

if you were over 40% tax then your marginal deductions become 40% plus 2% i.e. 42% in total (or 51% is paying a student loan)
so not so much more than now.


I assume you have been claiming all the allownace against your rental income (mortgage interest, letting cost, ware & tear etc )

GregDixon

Yes it took me a while to work out my SA, but I think I covered all the bases.

Thank you for the clarifications. That helps.