Everyone has a certain amount of income they can earn each year without paying Income Tax, known as their ‘personal allowance’. For the 2018/19 tax year, this amount is £11,850.
Your personal allowance is in addition to the Personal Savings Allowance (PSA). Since April 2016, savings interest has been paid tax-free, which means that most savers no longer have to pay Income Tax on the savings income they receive. Your PSA depends on which Income Tax band you are in, with basic rate taxpayers entitled to a £1,000 allowance, while higher rate taxpayers receive a £500 allowance. Additional rate taxpayers are not eligible for a PSA.
Investors also have a dividend allowance, which means that individuals receive their first £2,000 in dividends tax-free, but any dividends above this amount will be charged at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers. If you have not used all of your lower rate tax band and would like advice on whether you should be taking more dividend before 5 April 2019 please contact us.
Take advantage of your marriage vows. If one spouse is a higher rate or additional rate taxpayer and the other doesn’t pay tax at all, it could be more tax-efficient to put the account solely in the non-taxpayer’s name. This would give that spouse full ownership of the account, so you’ll need to make sure you’re both happy with the arrangement.
To discuss this or any other aspect of your tax planning contact Wild & Co Chartered Accountants on 01423 222710.