Whilst we all understand paying our taxes are important and play an essential role in today’s economy. There are several ways from protecting your personal pocket and reducing your tax liability!
With the new tax year in April 2021 and Mr Sunak’s Budget came increases to some allowances, therefor you can earn more tax free. Here’s an update on ways to protecting your hard-earned money.
Personal Allowance – £12,570
Up from £12,500 in previous years, personal allowance has increased to £12,570, frozen until 2026.
Basic rate taxpayers have a threshold held at £12,750 (20% tax paid on earnings greater than this) whilst higher rate taxpayers’ threshold is £50,720 (20% tax paid on earnings greater than this).
If you earn £12,750 or less you currently pay no income tax!
Capital Gains Allowance (CGT) – £12,300
A tax paid on profits gained when you sell a personal good, shares, artwork or a second home.
For individuals this remains at £12,300. Beyond these gains are paid dependant on income tax bands. For those basic taxpayers; 10% on assets and 18% on property. Additional rate taxpayers 20% on assets and 28% on property.
Dividend Income – £2,000
You can earn up to £2,000 per year through dividend income. This can be through owning shares in a company.
Again, beyond the threshold you will be taxed upon income tax rate. With basic rate taxpayers getting taxed at 7.5%, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.
The starting savings Rate £5,000
The starting rate include low-income households where tax is paid at 0%.
This is known as the starting rate and allows up to £5,000 per year tax free. However, this rate is reduced by £1 for every £1 you earn over personal allowance. i.e., If your other income is £17,570 or more you are not legible.
Personal Saving Allowance – £1,000
For basic rate taxpayers you can earn up to £1,000 interest a year tax free, whilst higher rate taxpayers can earn up to £500.
On the other hand you can earn interest in an ISA, however this may be subject to taxation when withdrawn from the account. The maximum you may put in an ISA for 2021/22 is £20,000.
Earn Cash from a Hobby – £1,000
You can earn up to £1,000 tax free as a hobby. This includes the likes of gardening, babysitting, or selling your own skills via training etc.
Using your own skills to earn tax free cash! Beyond £1,000 of income, you must complete a Income Tax Return, however we sort that for you!
Rent out your driveway – £1,000
You can make up to £1,000 tax free cash from renting out your own driveway or own personal storage space! This shall be dependent on individuals circumstances and your space available.
Rent out a room – £7,000
If your income is independent and you have a furnished room that you are willing to rent to a lodger you can do so tax free for up to £7,000 per annum (this is known as the governments Rent a Room Scheme).
If you earn less than the threshold this exemption shall be automatic, otherwise you would be required to complete a self-assessment tax return.
Marriage Allowance – £1,220
Easily the most complicated when applying for. However, if you are in a civil partnership or married you may be entitled to marriage allowance.
This shall apply to couples in which one of you is a non-taxpayer, therefor earning less than £12,570 and the other is a basic rate taxpayer, earning less than £52,570.
In short you will be able to shift £1,260 personal allowance, allowing the higher earner to cut their yearly tax bill.
If you were do the maths this shall only boost yearly earnings by £252. However, you can backdate this claim by four years, gaining a pay out of £1,220!
If all of this seems confusing contact the Ross Boyd Group on 028 953 201 55 or email firstname.lastname@example.org to arrange a chat through our advice.