More money in your pocket

Tax is one of life’s certainties for those working and earning above the Income Tax threshold in the UK. But there are tax allowances available to each of us every tax year which, if used, can mean more goes into your pocket and less goes to the ‘taxman’. And that’s got to be good news!

Many of these annual allowances are ‘use them or lose them’, meaning that if you don’t use the allowance in the current tax year, the unused amount doesn’t roll over into future tax years.

So, as we approach the 5 April and the end of the 2024/25 tax year, it’s worth checking whether you can benefit from using your annual tax allowances:

Income Tax

Income Tax is the tax you pay on money you earn - here are some things for a quick check:

1. Personal allowance – you can earn up to £12,570 without incurring Income Tax. If you are married or have a Civil Partner who is not earning, you may want to consider putting some of your investments or other income in their name to reduce your overall tax. Furthermore, if you are a basic rate taxpayer and your partner is a non-tax payer, you can claim 10% of their unused personal allowance to use against your own income
   
   
2. Tax bands – in England, Wales and Northern Ireland, Income Tax is charged at three rates and in Scotland at six rates. See here for the different rates relevant to you
   
   
3. Savings allowance - you can earn up to £1,000 a year from savings and investments without incurring Income Tax (£500 for higher rate taxpayers and £0 for additional rate (45%) taxpayers)
   
   
4. Pension annual allowance – you can save up to £60,000 a year (the allowance is reduced by £1 for every £2 of income over £260,000, reducing to £10,000 for anyone with an income of £360,000 or more) into a pension. As well as what you contribute and the amount your employer contributes (for workplace pensions) you will receive tax relief on the total contributions, so turbo-charging your pension savings
   
   
5. Annual ISA allowance – you can save up to £20,000 each year into an ISA. ISAs are an effective way to save tax-free, so that any savings or investments held in the ISA can grow and be used in the future without incurring any tax on interest and/or dividends earned, or on any capital gains

National Insurance

There are different classes of National Insurance contributions (NIC), but for most employees Class 1 NIC will be deducted direct from payroll, alongside Income Tax each payday.

Similar to Income Tax, you can earn up to £12,570 each tax year without paying any NIC.

For those earning between £12,571 and £50,270, the rate of NIC is 8%.

For those earning above £50,271 the rate of NIC is 2%.

National Insurance contributions are important as they can also determine other state benefits. For example, to receive a State Pension you need to have made National Insurance contributions for at least 10 qualifying years, and to receive the full basic State Pension you will need to have made 35 years of NICs.

You can check your NIC record via the government website. For missed years, you can make additional payments and you may also be eligible for National Insurance credits if you have taken time out of work to raise a family, been unemployed, a carer or for periods of illness.

Capital Gains Tax

Capital Gains Tax is tax you may need to pay on the profit you make when you sell an asset. For more information, take a look here.

1. Annual Capital Gains Tax allowance – you have an Annual Capital Gains Tax Allowance of £3,000. If you sell assets at a profit below this £3,000 Allowance, you can do so without incurring Capital Gains Tax. For gains above that, the Capital Gains Tax rate is 18% for basic rate taxpayers and 24% for higher/additional rate taxpayers
   
   
2. Managing Capital Gains Tax – there are various ways to plan to reduce your Capital Gains Tax and two of the most common are:
   
   
   • Selling your assets over two or more tax years – so using more than one year’s Capital Gains Tax allowance. Remember selling an asset on 5 April and on 6 April in the same calendar year means selling it in two different tax years
   • Sharing the asset between civil partners or spouses so as to use two people’s annual Capital Gains Tax allowances
     
     
3. Registering capital losses – if you make a loss when you sell an asset, keep the details and inform HMRC. These capital losses can be taken off future capital gains to reduce your Capital Gains Tax bill. You must register the loss within two years of making a loss

Tax benefits depend on individual circumstances and tax rules may change. Capital may be at risk.