Making allowances

How to take advantage of your Annual Tax Allowances

As we approach the end of the tax year, it’s important to be fully aware of what Annual Tax Allowances are available, and how and where you can take advantage of them. Michael Chadwick, founding director at Chadwick & Company helps explain several of the allowances, such as Capital Gains Tax, Personal Allowance and Tax-Free Dividends.

The Annual Exempt Amount from Capital Gains Tax (CGT) is £11,700. This was increased for the 2018/19 tax year. The previous exempt amount had been £11,300, so this represents a rise of 3.5%. CGT is paid on items that are sold for a profit. It includes assets such as second homes or other chargeable assets. In brief, this means you are liable for 28% tax on your gains from residential property, or 20% tax on gains from other chargeable assets. It’s just the financial profit that is taxed, not the entire amount of money you receive. In simple terms, that means you can now make a gain of £11,700 over the year before being required to pay tax on it.

Personal tax

The personal tax you pay each year to HMRC depends on how much your income exceeds your Personal Allowance and how much of it falls within each taxable band. There are a variety of items you don’t have to pay tax on. These include the first £1,000 of income if you’re self-employed (known as a ‘trading allowance’), incomes from tax-exempt accounts (such as ISAs) or your winnings, if you strike it lucky on Premium Bonds or the National Lottery. Don’t forget, you have an ISA allowance of £20,000 and there is also a Junior ISA limit of £4,260 too.

Increasing personal allowance

Items you do pay tax on include your salary from employment or self-employment, interest you receive from your savings (that exceed your savings allowance) and some rental incomes. The personal allowance you’re permitted that is 0% rated is increasing to £12,500. Previously the standard Personal Allowance was £11,850. This amount may be bigger if you claim Marriage or Blind Person’s allowance.  

Good news on tax bands

For the year 2019/20, the basic rate tax band is increasing to £37,500 and the higher rate will reach £50,000. The tax-free dividend of £2,000 must be fully used up by the end of the year, while there is also £3,000 gift relief for Inheritance Tax. 

For more detailed advice on what annual allowances are available to you, please email or call Michael Chadwick, Martin Daglish or Michele Howe on 0161 370 9600.