Update 30 October 2024 – Following the Budget announcement today, some of the details mentioned in this insight may have changed. Please visit our Budget page for further information.
With the end of the tax year fast approaching (5 April) now is the time to give your finances a spring clean to make sure you have taken full advantage of the reliefs that are available.
Here, James Johnson provides a handy checklist of the tax reliefs that can save you money and should not be ignored.
Personal allowance
Every individual can earn £12,570 a year before paying income tax. Married couples and civil partners can transfer £1,260 of their personal allowance to their spouse or civil partner to further enhance their personal allowance.
For example, if you earn £11,000 a year and your partner earns more than £12,571 and less than £50,270, the marriage allowance would reduce the amount the tax paid by your partner.
Savings and ISAs
The Government continues to encourage savers with attractive incentives for those putting money into ISAs. You can save up to £20,000 a year in ISAs, bank or building society savings accounts and National Savings and Investments accounts, such as Premium Bonds, without paying tax.
Basic rate taxpayers can earn up to £1,000 a year in interest on savings without having to pay any tax. Higher rate taxpayers can earn up to £500 a year. After that, tax will need to be paid. You may also get up to £5,000 of interest and not have to pay tax on it. This is your starting rate for savings. The more you earn from other income (for example your wages or rental) the less your starting rate for savings will be, once you have income over £17,570 the starting rate is removed.
Dividend income
It is possible for you to earn up to £2,000 a year tax free from dividends, perhaps from stocks or shares. After that, tax will be payable with the amount depending on whether you are a basic, higher or additional rate taxpayer (dividend income which falls within your personal allowance is also tax free).
Capital Gains Tax
Capital Gains Tax thresholds are changing and becoming less generous. The current £12,300 threshold will be halved from April 2023 to £6,000 and then again in April 2024 to just £3,000.
Those wishing to sell any assets, such as a second home, art or antiques and wish to take advantage of the higher threshold have just a few short weeks in which to do so. It should be remembered that CGT is not payable on the family home (as long as its always been the family home).
Selling goods online
Many of us will sell unwanted processions on platforms such eBay, vinted and depop. The good news is that we can all sell items with a combined value of £1,000 a year without any tax to be paid. Income over that £1,000 threshold will need to be declared with income tax payable.
Inheritance tax
Despite government manifesto promises, the inheritance tax threshold remains at £325,000. Assets over that threshold will be taxed at 40%.
There are, however, many reliefs available with perhaps the most valuable being the ability to pass to your spouse or civil partner the family home. Here, the IHT threshold increases to £500,000, effectively lifting the IHT threshold to £1m on the family home. Residence nil rate band is tapered if the estate is worth more than £2 million – You will lose £1 for every £2 that the estate is worth more than 2 million.
Rent a room a relief
Those of us with a spare bedroom and choose to rent to a friend or allow Airbnb guests to stay can earn up to £7,500 a year without paying any tax (the rate is halved if you share income with someone else). Rooms must be furnished and if rental income exceeds that threshold it will need to be declared in a tax return.
Pension contributions
It is possible to pay up to £40,000 a year into your pension. This pension allowance changes for those earning more than £150,000 a year. There is also a lifetime pension allowance, or cap, of £1,073,100, although this is expected to change.
Other income tax reliefs
Attractive income tax reliefs of up to 50% are available for those with the cash to invest in young and growing businesses. These generous reliefs recognise the risks associated with these investments, with investments needing to be made via the following HMRC recognised schemes:
- Seed Enterprise Investment Scheme (income tax saving is 50%) – maximum investment £100,000 a year
- Enterprise Investment Scheme (income tax saving is 30%) – maximum investment £1 million a year
- Venture Capital Trusts – maximum investment £200,000 a year
- Social Investment Tax Relief – maximum investment £1 million a year
Please get in touch with James Johnson on the details below if you would like to discuss anything related to the content of this article.
