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How to maximise your tax-free earnings

Paystream News

David McManus

Thursday 24th May, 2018

The 2018-19 tax year is now well underway and so there's never been a better time to consider the various tax allowances and reliefs you potentially have access to.

£11,850 personal allowance

The personal allowance is how much you can earn per year without being charged any tax. Everyone receives a personal allowance of £11,850 for 2018-19 (up from £11,500 in 2017-18).

Earnings above this are charged at either 20% 40% or 45% depending on your other income (or 19%, 20%, 21%, 41% or 46% in Scotland).

If you earn more than £100,000, you’ll start to lose the amount of personal allowance you receive by £1 for every £2 over £100,000 you earn.

£2,000 dividend allowance

Your annual dividend allowance for paying tax on dividends at 0% is £2,000 for 2018-19.

If you earn more than £2,000 from dividends, you'll be taxed at either 7.5%, 32.5% or 38.1% based on the rate you pay on your other income.

£6,000 tax-free interest from savings

The savings starter rate allows you to earn income from savings accounts without paying income tax. It applies to people who earn less than £16,850 a year, but only those who earn less than the personal allowance can benefit from the full rate of £5,000. For every £1 you earn above the personal allowance, you lose £1 of savings allowance.

In addition to this, basic-rate taxpayers receive a £1,000 annual savings allowance before any tax is due and higher-rate taxpayers receive £500. Additional- rate taxpayers however don't receive any savings allowance.

£1,190 Marriage Allowance

To qualify for this you must be married or in a civil partnership, one spouse must earn under the Personal Allowance and the other earn less than the higher rate threshold. The lower earning spouse can then transfer 10% of their unused personal allowance to their spouse and their partner then receives a tax credit for this amount which is then deducted from the amount of tax the higher-earning spouse would usually have to pay.

£11,700 capital gains allowance

Capital Gains Tax is due on any profit that you make when you sell an asset such as shares, property or a painting. The annual tax-free capital gains tax allowance for 2018-19 is £11,700, up from £11,300 in 2017-18. Over this the rates are 10% or 20% (18% and 28% for property sales) depending on the rate of tax you usually pay.

£1,000 trading allowance

The trading allowance was introduced from the 2017-18 tax year onwards to allow you to earn up £1,000 per tax year from buying and selling low-value items - for example, selling items on Ebay- without having to declare this income to HMRC.

£1,000 property allowance

Each year, you're allowed to earn up to £1,000 from your property before having to pay tax on your extra earnings. This is often used if you make money from renting out your property in a casual way such as renting your driveway for parking. This can't be claimed in addition to the Rent-a-room allowance.

£7,500 Rent-a-room scheme

Rental income is taxed on your profits, meaning whatever is left over after you deduct any allowable expenses such as cleaning fees, building insurance, etc. If you are renting a room within your property, you can earn up to £7,500 a year through the Rent-a-room scheme without paying any tax on this.

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