Income Tax Allowances
The HMRC gives allowances to individuals on which they do not have to pay tax. Tax allowances reduce your taxable income which in turn reduces your tax bill. The exception to this is the marriage allowance which is a tax credit and therefore deducted from tax liability. Here is a short summary of the tax allowances currently on offer from HMRC.
Taxpayers can earn a certain amount of income before having to pay income tax. This is known as the basic personal tax allowance. See our schedule of taxes for information about the current personal tax allowance. The personal allowance for 2018/19 was £11,850.
The personal Allowance Tax allowance is the same for all taxpayers until you start to earn over £100,000. Once you earn over this level your personal allowance will decrease by £1 for every £2 you earn.
People who are married or in civil partnerships can avail of marriage allowance to reduce their tax liability. How much a person can claim will depend on how much they earn and when both partners were born. See HMRC for more information on age limits and how Marriage Allowance is calculated.
Personal Savings Allowance
You are entitled to earn some interest on your savings tax-free each year. The amount of interest that can be earned tax-free will depend on the rate of tax you pay. For the 2018/19 tax year:
- Basic-rate taxpayers could earn interest up to £1,000 without paying tax
- Higher-rate taxpayers could earn interest up to £500 without paying tax
Interest earned on ISA accounts will not affect your personal savings tax allowance.
Taxpayers can receive dividends up to a certain level tax-free. In the 2018/19 tax year, you were able to earn dividends up to £2,000 tax-free. This has reduced from £5k in the previous year.
Blind Persons Allowance
If you or your partner is blind you are entitled to an additional allowance. This allowance was £2,390 for the 2018/19 tax year. This allowance also implies to individuals who have severely impaired sight. If both partners are eligible, both can get the allowance.
In England and Wales, you need to be certified blind to qualify for this allowance. The rules are a little easier in Scotland and Wales.
Trading & Property Allowance
Taxpayers are allowed to earn up £1,000 trading income and property income in a year without paying tax. This is gross income so after deducting expenses. Individuals have a £1,000 allowance for both trading and property income.
Trading income is income for a self-employed activity, casual services provided such as baby-sitting and hiring personal equipment. If your trading income is more than £1,000 you are required to register for self-assessment. There are instances where you need to register for self-assessment if your gross income is less than £1,000.
This is a summary of the tax allowances available from HMRC. Make sure you are aware of these if completing a self-assessment tax return. See also the low-income tax reform group for more information.