Plan now to make the most of your Tax Allowances
6th April 2022 marked the start of the new tax year. This means that taxpayers have a fresh opportunity to make the most of annual allowances and exemptions. What kind of simple, but effective, ideas should you be looking at?
Most of us are aware that each year they are entitled to a tax-free personal allowance of £12,570 (2022/23 figure). Anyone looking to generate some income should keep this figure in mind, particularly if you have a measure of control over it, for example company owners and Directors. There are multiple allowances that can also be used between family members for example between spouses can transfer any unused allowance up to a maximum of £1,260 to their husband, wife or civil partner saving up to £252 in tax.
However, there are also other allowances and exemptions meaning that further income can be received tax free, if it is in the right format.
For example, a homeowner could let out part of their family home to a lodger. As long as there is shared occupation, up to £7,500 can be received completely free of tax.
Investment income is also very efficient at lower levels. Up to £6,000 of savings interest can be received free of tax in the right circumstances. For shareholders, the first £2,000 of dividends received are at 0%.
There are also annual allowances for making various investments that are lost if not used. An individual can put up to £20,000 into an ISA, where it can subsequently grow free of tax. Pension contributions of up to £40,000 can also be made each year with similar tax protected status.
It’s not just income that enjoys a tax-free allowance. Individuals can make capital gains on disposals of assets of up to £12,300 before needing to pay anything.
It is important to remember that in most cases these allowances do not rollover from one tax year to another. So if you don't use them they will be lost. make sure you start planning early to ensure the maximum possible efficiency can be obtained.