Visualise your take-home pay or your investment growth.
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Multipliers applied to each chunk of income (after Tax & NI):
See how take-home pay grows (or slows down) as you earn more.
This is standard income from an employer. It is subject to both Income Tax (20%, 40%, 45%) and National Insurance (NI). Because it is classified as 'earned labor,' it carries the highest overall tax burden.
Dividends are cash rewards paid to company shareholders out of company profits. Because the company has already paid Corporation Tax on these profits, the government taxes your dividend income at a much lower rate (8.75%, 33.75%, 39.35%) to prevent 'double taxation.' Furthermore, dividends are exempt from National Insurance. You also get a strict £500 tax-free Dividend Allowance.
This is the profit you make when you sell an asset (like stocks or property) that has increased in value. You get a £3,000 Annual Exempt Amount (tax-free profit). The remaining profit is taxed at 18% (Basic) or 24% (Higher) for standard assets. Like dividends, Capital Gains are exempt from National Insurance.
Your Average Rate is simply your total tax bill divided by your total income. Your Marginal Rate is the amount of tax you will pay on the very next £1 you earn. Watching your Marginal Rate is crucial for tax planning, as crossing a new threshold (like the £50,270 higher rate limit) makes your next £1 significantly less valuable.