Welcome to our quick guide on five important tax allowances in the UK that you should know about. This article will discuss Dividend Allowance, Capital Gains Tax Allowance, Savings Allowance, Marriage Allowance, and Isa Allowance for the current tax year.
These allowances can significantly impact your financial well-being, so being well-informed is essential.
Dividend Allowance
Our first stop is the Dividend Allowance. For the 2023-24 tax year, this allowance is set at £1,000. It means you can receive up to £1,000 in dividends without being subject to any tax. However, there’s a catch – this allowance will decrease to £500 in the next tax year.
Therefore, it’s crucial to maximise its benefits while it is still at its current level. Dividends are a common source of income for those holding company shares, and this allowance offers a tax-saving opportunity.
Capital Gains Tax Allowance
Next, let’s explore the Capital Gains Tax Allowance. The first £6,000 of profit is tax-free in the 2023-24 tax year if you sell investments or assets. This can translate into significant savings, allowing you to keep a substantial portion of your gains without any tax liability.
For married couples or civil partners who jointly own assets, this allowance extends to £12,000. Capital Gains Tax (CGT) typically applies to the profit you make when selling assets such as property, shares, or certain personal possessions. This allowance is a valuable tool to keep more of your investment profits.
Savings Allowance
The Savings Allowance is another noteworthy aspect of the UK’s tax system. In the 2023-24 tax year, basic-rate taxpayers can earn up to £1,000 in interest on their savings entirely tax-free. The allowance is still a respectable £500 for those in the higher tax bracket.
This presents a wonderful opportunity to make your money work for you. Interest earned on savings can be a significant part of your income, and with this allowance, you can enjoy more of it tax-free.
Marriage Allowance
Marriage Allowance offers a unique way to optimise your tax situation if you’re married or in a civil partnership. Under this allowance, you can transfer 10% of your personal allowance from the lower-earning partner to the higher-earning partner.
In the 2023-24 tax year, this transfer amounts to £1,260 and could save you up to £250 in tax, provided the higher earner is a basic-rate taxpayer. It’s a tax-efficient strategy to redistribute your household’s tax burden and reduce your overall tax liability.
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ISA Allowance
Lastly, we come to the ISA (Individual Savings Account) Allowance, a versatile and tax-efficient way to save and invest. The Isa allows everyone to take advantage of their annual tax-free Isa allowance. For the 2023-24 tax year, you can deposit up to £20,000 into Isa accounts.
The good news is that this allowance remains unchanged from the previous year. This allowance gives you the freedom to save or invest without the burden of tax on any interest, dividends, or capital gains generated within the Isa.
Conclusion
In summary, understanding these allowances is a crucial step in ensuring that you save on your tax bill and retain more of your hard-earned money. These allowances are designed to provide financial benefits to individuals and families, and it’s in your best interest to take full advantage of them.
By optimally utilising these allowances, you can improve your financial security and work towards achieving your financial goals.
