Basic Rate of Tax

The tax system in the U.K. allows you to earn some money without incurring any tax liability ( this is determined by your personal allowance ), earn some money which is taxed at the lower rate , then earn some money which is taxed at the basic rate and then earn some money which is taxed at the higher rate . In other words, in economists jargon, the tax system is progressive - the more you earn, the higher your marginal rate of tax.

Approximately 16 million tax payers pay tax at the basic rate as their top rate of tax. The basic rate of income tax has been cut in stages from 33 per cent when the Conservative government took office in 1979 to 23 per cent in 1995 and, after Labour came to power in 1997 to 22 per cent in 2000.

In Budget 2007, Chancellor Gordon Brown announced that the basic rate of tax would be reduced to 20 per cent with effect from April 2008. At the same time, the 10 per cent lower rate of tax, which he actually introduced in 1999 will be abolished.

Go to Moneyextra's Tax Centre .

Last Updated: April 2008 © Moneyextra.com

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