personal finance

Tax code BR: What does it mean? Why it might be used for your pension

Checking one’s tax code can be important, as the codes affect the amount of tax which is paid to HMRC. The most common tax code in the tax year of 2019 to 2020 is 1250L. This letter means that the taxpayer is entitled to the standard tax-free Personal allowance. Meanwhile, the numbers convey that the full £12,500 tax-free Personal Allowance is the tax-free income that one is allowed in a tax year.

However, it may be that a person spots the letters BR on their payslip.

These letters mean that all of the individual’s income from this job or pension is taxed at the basic rate.

The basic rate tax band in the UK is 20 per cent. Tax rates and bands differ in Scotland.

It is usually used if a person has got more than one job or pension, the government website explains.

What are the current Income Tax rates and bands?

A taxpayer usually gets to claim the Personal Allowance, which means that all taxable income up to £12,500 is charged at a tax rate zero per cent.

The basic rate of tax (20 per cent) usually applies to portions of taxable income ranging between £12,501 and £50,000.

Higher rate taxpayers will pay the 40 per cent tax rate, and this is on taxable income between £50,001 to £150,000.

Any taxable income which exceeds £150,000 would be subject to the 45 per cent tax rate, known as the additional rate.

People with high income may end up losing all or some of their Personal Allowance.

For all taxable income greater than £100,000, taxpayers can lose £1 of their Personal Allowance for every £2 their taxable income is above this threshold.

This means that in the current tax year, a person who has a taxable income of £125,000 will not get the Personal Allowance.

That said, others may be able to increase their Personal Allowance.

This could be done by eligible couples who claim the Marriage Allowance.

It sees one partner transfer 10 per cent of their Personal Allowance to a spouse or civil partner.

This means that while one person has a lower Personal Allowance, the other has a higher tax-free amount.


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