Understanding your annual allowances
We are looking at your annual allowances, and what you can do with them to keep more of your money out of reach of the tax man:
Your ISA allowance
ISAs are exempt from income tax and capital gains tax, so the government sets a limit on how much you can invest. This has remained at £20,000 for several years now. Investing as much as you can each year is usually a sound decision. The Chancellor has announced that a new British ISA will be rolled out to investors, which will allow savers to invest an additional £5,000 a year tax-free in UK assets, but this is not made available as of yet. The ISA allowance is annual – if you don’t use it before April 5th, you can’t backdate it.
Capital Gains Tax allowance
Capital Gains Tax is charged on the profit you make when you sell an asset, such as investment or property other than your home. The allowance for CGT is the Annual Exempt Amount (AEA). For 2024/25 tax year, the AEA will be £3,000 for individuals and personal representatives, and £1,500 for most trustees. From April 6th 2024, your allowances for dividend income and capital gains fell significantly.
Personal allowance
Every taxpayer has a personal allowance, the amount they can earn each year without paying tax. For the 2024/25 tax year, you can earn £12,570 before the taxman takes his cut (although it starts to taper away by £1 for every £2 that you earn over £100,000). Anyone who earns more than £125,140 will pay tax on all the income they earn. If you live in Scotland the income tax bands are slightly different.
Saver’s allowance
Personal Savings Allowance or PSA means that most savers have got out of the habit of paying tax on the interest from their savings – especially as in recent years savings generated very little interest to begin with. Your PSA depends on the income tax band you are in. Basic rate taxpayers have a £1,000 allowance. Higher rate taxpayers receive a £500 allowance. Additional rate taxpayers have no PSA and must pay tax on all the interest their savings earn.
Dividend allowance
You may get a dividend payment from shares in a company, but you don’t pay tax on dividend income that falls within your Personal Allowance or the dividend allowance, which is £500 for the current tax year. We can make the most of your dividend allowance -such as protecting your dividends with an ISA. Pension allowance The pension allowance is currently £60,000, or the value of your whole earnings – whichever is the lower. Your pension may be your most important investment of all. Getting the pension arrangements that are most beneficial to you – and not the taxman – is essential.
Through our partners - We can help you structure your pension in the most appropriate way, – and potentially take advantage of allowances from previous years.
Gift Allowances
Each tax year you are allowed to give £3,000 as a gift tax free, without it being added to the value of your estate. This is called the ‘annual exemption’. Apart from gifts to a spouse or civil partner gifts are subject to allowances. You can make unlimited individual gifts of up to £250 per person (however, this only applies if you have not used another allowance on the same person) or wedding gifts of up to £5,000 for a child, £2,500 for a grandchild or great-grandchild, or £1,000 to anybody else. Giving away assets can reduce your estate, which in turn reduces liability for inheritance tax.
Get some help
The rules on allowances are clear – but there are many ways to make the most of them. We can help you use them as a part of an integrated financial strategy, designed to help you make the most of all your money. Why not call me today?
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable savings or investment strategy, you should seek independent financial advice before embarking on any course of action. The Bean Counters Accountants LLP is not regulated to give investment advise but is able to introduce clients to Continuum. The Financial Conduct Authority does not regulate deposit accounts, taxation and trust advice or will writing. Levels, bases and reliefs from taxation are subject to individual circumstances and may be subject to change. A pension is a long-term investment, the fund value can go down as well as up and this can impact the level of pension benefits available. Pension Income could also be affected by interest rates at the time benefits are taken. The value and returns of an investment are not guaranteed, investors may lose some or all of their investment. Capital is at risk.
