Personal tax allowance: exceptionsThough the personal tax allowance can give you savings on your income up to £11,850, there are many other ways of saving more money due to the numerous special circumstances and exceptions laid out by HMRC. Allow the tax experts at Tax Agility to guide you through the most important ones.

Tax on savings interest

Most people can earn some interest from their savings without paying tax. The starting rate for tax savings is £5,000 but is subject to certain conditions. The amount that you don’t have to pay tax on depends on your primary income and personal tax allowance:

  • If your primary income is £16,850 or more – You’re not eligible for the starting rate for savings.
  • If your primary income is less than £16,850 – Your starting rate for savings is a maximum of £5,000. Every £1 of other income above your Personal Allowance reduces your starting rate for savings by £1.

Remember that this applies to with a personal tax allowance of £11,850. If your personal tax allowance is higher, then the bands are calculated by adding £5,000 to your own personal tax allowance and using that value instead. Additionally, you are entitled to an extra £1000 of tax-free income if you are a basic rate taxpayer, called personal savings allowance. This is cut to £500 if you’re a higher rate taxpayer, with additional rate taxpayers getting no allowance.

Tax on dividends

You may get a dividend payment if you own shares in a company. You only have to pay tax if your dividends go above your dividend allowance in the tax year. The dividend allowance was calculated differently before 06 April 2016, but it has since been changed to a fixed amount each year. Depending on which tax band you are in you can have different rates of tax:

  • Basic rate – 7.5%
  • Higher rate – 32.5%
  • Additional rate – 38.1%

As of 2018/19, there is an allowance of up to £2,000 for dividend income with anything above that taxed according to the above rates. The dividend income must be added to any other taxable income when calculating what you need to pay.

Tax on property and trading income

There are two aspects to tax on property and trading income, both with restrictions, but both allowing £1,000 of tax-free income if you pass. The first aspect concerns income from trading, obtained explicitly from any of the following sources:

  • Self-employment
  • Casual services such as babysitting or gardening
  • Hiring personal equipment such as power tools

If you receive income from these sources, then £1,000 of it is tax-free. Furthermore, if your total gross annual income from trading is less than £1,000, then you don’t need to inform HMRC.

The second aspect concerns income from rented properties. Up to £1,000 of income from these properties is tax-free. However, if the property is jointly owned, then both owners get £1,000 of tax-free income on their individual shares, rather than the income of the house as a whole.

Tax relief

Tax relief occurs when you are repaid tax (or charged less tax overall) for money spent on specific things. It applies primarily to pension contributions, charity donations and maintenance payments, although, you may also use it if you are self-employed or use your own money for travel and necessary equipment for your job. You can also claim tax relief if you have income from working on a ship outside of the UK. Full details about the requirements are on the government income tax relief information page.

Marriage allowance

Marriage Allowance lets you transfer £1,190 of your Personal Allowance to your husband, wife or civil partner if they earn more than you. There are several restrictions on this, and you can only benefit from it if:

  • You are married or in a civil partnership
  • You do not pay income tax (or your income is lower than your personal allowance)
  • Your partner pays income tax at the basic rate, which usually means their income is between £11,851 and £46,350

Overall this can reduce their tax by up to £238 in the tax year. Note that you should call the HMRC if you either receive other income such as dividends or savings or if you are a Scottish taxpayer.

Making sense of tax allowances with Tax Agility

Many of the tax allowances overlap or are conditional on each other, making it a challenge to understand. At Tax Agility, our tax allowance specialists can translate the financial jargon and assist you in applying for tax allowances to get maximum savings.

To find out if you’re missing out on beneficial tax allowances that can help you to save even more money, give our chartered accountants a call on 020 8108 0090. Alternatively, you can use our Online Form.

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