Tax allowances for individuals are normally used within the tax year or lost. Often the allowances are overlooked because in isolation they are small, but utilised together, especially in a family scenario, they can generate real tax savings.
 

The main allowances are:

  • Personal allowance

The personal allowance of £11,850 (increasing to £12,500 from 6 April 2019) allows the first slice of a taxpayer’s income to be tax-free provided their total income does not exceed £100,000.
 

  • Starter rate of savings

The starter rate of savings allows £5,000 of interest to be received tax-free provided the taxpayer’s other income is less than £16,850. For basic and higher rate taxpayers they can use the personal savings allowance to receive £1,000 or £500 respectively of interest tax free.

  • Dividend allowance of £2,000

A 0% tax rate applies to the first £2,000 of dividend income received in a tax year.

  • Capital gains tax

Annual exemption is £11,700 increasing to £12,000 from 6 April 2019. Taxpayers can make gains up to this level without incurring capital gains tax. It is worth remembering that assets can be transferred tax-free between spouses to enable both individual’s allowances to be used.

  • Inheritance tax

The exemption for gifts continues to be £3,000 and the allowance from the prior year can be carried forward if unused to enable up to £6,000 of gifts to be made in any tax year.

Top tip: Taxpayers who are married or in civil partnerships are entitled to transfer up to £1,150 of their personal allowance to their spouse provided their spouse is a basic rate taxpayer (or intermediate rate payer in Scotland). This gives an annual saving of £230 and claims can be backdated to the 2015/16 tax year.

Read the next section of our tax planning guide: Scottish Taxes or return to the main page.

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