If you add up all the many annual tax-free allowances for different types of profits, and organised your finances to use them all, you could enjoy as much as £38,300 of income and gains without paying any tax at all. Now that’s a valuable prompt at the start of the new 2017/18 tax year.
First, the personal allowance, available in full to everyone (other than certain non-domiciled individuals) with less than £100,000 of income will be £11,500. Whether you can use this allowance in full will depend on the assets held or types of income earned.
The personal allowance is closely followed by the capital gains tax exemption of £11,300. Clearly this needs asset growth to utilise. Typically one might think of a share portfolio, but more individuals are now holding personal wealth, including buy-to-let properties, through companies, which can allow for the capital gains tax exemption to be more easily utilised. For those with share portfolios, the tax-free dividend allowance, which is available to all taxpayers whatever rate of tax they pay, remains at £5,000 for one more year.
Another generous measure is the rent-a-room relief for those who take lodgers into their own home: a tax-free allowance for the rental income means that up to £625 per month of rent can be received without paying any tax.
For those with small amounts of trading income and property income, there are two separate £1,000 allowances to exempt amounts of property and trading income under £1,000.
Finally, there is the tax-free interest allowance of £1,000 for those who pay tax at the basic rate and receive interest income from savings and investments.
While it may not be possible to have every type of tax free income or gain, many individuals could go a long way to receiving a relatively significant sum of money from a variety of sources, before paying any tax at all.
Here’s a handy summary:
|£11,500 personal allowance|
|£11,300 capital gains|
|£7,500 rent-a-room relief|
|£1,000 trading/hobby income|
|£1,000 rental income|
For couples, it may be possible to double these amounts to provide an even more generous tax-free income.
And finally, don’t forget that you have to meet conditions to qualify for these reliefs and allowances. Do check the rules before you rely on them
For more information please get in touch with Gary Heynes, or your usual RSM contact.