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DNG Question Time – How can I make the most of my personal tax allowance?

The final topic in our Question Time series explores personal taxes and how to make sure you can get the most from your salary and personal tax allowance. There is still chance to read the earlier blogs in this series which covered topics including MTD, cloud accounting and payroll.

How can I make the most of my salary?

The standard basic personal allowance for the 2019/20 tax year is £12,500. The Personal Savings Allowance also allows a basic rate taxpayer to receive up £1,000 in bank and building society interest tax free. This is reduced to £500 for higher rate taxpayers and £0 for additional rate taxpayers. You will pay tax on any interest over your allowance at your usual rate of Income Tax.

Can I transfer assets to my partner?

Don’t forget that spouses and civil partners can gift assets between each other without tax consequences. You may be able to transfer shares, money or other assets which enables both partners to make use of their allowances and may be a useful personal tax planning idea.

How about savings?

If your level of taxable other income is no more than £16,850 you may also be able to receive up to £5,000 of interest tax free. This is known as the starting rate for savings, the more you earn from other income (e.g. wages or pension) the less your starting rate for savings will be.

There are a range of ISAs available including cash ISAs, stocks and shares ISAs and innovative Finance ISAs. For the tax year ending 5 April 2020 you can save a total of £20,000 into ISAs, either all in to one kind (e.g. cash), or spread across the three types. ISAs offer tax free interest or income and tax free capital gains.

You can also plan for your children’s future with a Junior ISA for children under 18. These are long term tax free savings accounts for children. Cash and stocks and shares ISAs are available and the annual limit for the 2019/20 tax year is £4,368.

What about pensions?

Private pension contributions are a tax-efficient method of building up funds for your retirement. Personal contributions cannot exceed 100% of your earnings and generally cannot exceed £40,000 per year, although additional contributions can be made in certain circumstances. If your pension pot exceeds £1.03m at the point of retirement then an additional tax charge can be incurred. The benefit of making private pension contributions is that they increase the amount of your income that is tax free. In addition higher rate tax payers may be able to claim an additional 20% tax relief.  Furthermore, if you have your own company then company contributions can be made which provides tax relief for the company.

How can DNG help?

We always recommend that you think about seeking professional advice if you are considering tax planning ideas. Whilst the suggestions above may be fairly straightforward you should also consider other factors such as the level of net income you need, the reason you are saving and retirement planning generally as these may impact on your decision. We would be pleased to discuss any of the above ideas with you, please contact us.

Our next blog will round up some of the key points we have covered over the last few weeks.


Ian Lowry



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