Utilising Available Allowances

With the end of the tax year approaching now is a key time for tax payers to ensure that they have utilised all the allowances available to them before these are lost.

The present tax year runs from 6 April 2020 to 5 April 2021.

The allowances available for an individual this tax year are as follows:

  • Personal allowance – this is the amount an individual can earn before paying income tax. The amount for 2020/21 is £12,500. Please note if your earnings are over £100,000 the personal allowance is reduced by £1 for every £2 of income over £100,000.
  • Basic rate band – from £0 – £37,500 of income in excess of the personal allowance (if applicable) is taxable at basic rate. Basic rates of tax for income and savings is set at 20% and for dividends is 7.5%.
  • Higher rate band – from £37,501 to £150,000 of income in excess of the basic rate band is taxable at higher rate. Higher rates of tax for income and savings is 40% and for dividends is 32.5%.
  • Dividend allowance – all individuals in the UK are entitled to receive £2,000 of dividends tax free, regardless of their other income
  • Savings allowance – this is an allowance against bank and other interest receivable. The rates are £1,000 for a basic rate tax payer and £500 for a higher rate tax payer. There is no savings allowance for an additional rate tax payer (earnings of over £150,000).
  • Trade allowance – a flat allowance of £1,000 for all trading income such as selling on Amazon. If income exceeds £1,000 then you can elect to deduct the allowance rather than the relevant expenses.
  • Property allowance – works in the same way as the trade allowance but for rental income received.
  • Pension annual allowance – This is up to £40,000 of gross pension contributions. Please note that if relevant earnings exceed £240,000 then the allowance is reduced £1 for every £2 over £240,000 to a minimum of £4,000.
  • Capital gains tax annual exemption – for the sale of capital items such as investment properties or shares. The annual exemption is £12,300.

To discuss any of the available allowances or for advise on how to utilise the above allowances please contact your local Perrys branch.