As inflation soars and people are looking to make savings to cope with rocketing fuel bills and food prices, it’s worth checking on your taxation status to see if you are paying too much.
Workers have also been hit by a National Insurance rise in April. However, this has been mitigated as the threshold for when you start paying National Insurance has moved into line with your personal tax allowance. The threshold for paying the NI has risen from £9,880 to £12,570, saving taxpayers an average of £330 a year.
Everyone has a personal allowance which is tax free and above that, depending on your tax rate, you will pay either 20, 40 or 45 per cent income tax.
The basic tax rate of 20 per cent starts at £12,750, rising to £50,270 when the 40 per cent rate kicks in. The 45 per cent rate starts at £150,000.
What is my tax-free Personal Allowance?
The standard Personal Allowance is £12,570 but may be bigger if you claim Marriage Allowance or Blind Person’s Allowance, (an extra 2,600). It’s smaller if your income is over £100,000 and reduces by £1 for every £2 that your adjusted net income is above £100,000. This means your allowance is zero if your income is £125,140 or above.
The marriage allowance let one partner transfer £1,260 to the other partner, thereby reducing their tax by up to £252 (1,260×20%) in the tax year to 5 April the next year.
The one partner’s Personal Allowance becomes £11,310 while the other can earn an extra £1,260 tax free.
Income tax bands are different if you live in Scotland.
You have tax-free allowances on:
- Interest on savings
- Dividends, if you own shares in a company
You do, however, pay tax on any interest, dividends or income over your allowances.
Tax free allowances include:
- Trading allowance, which is your first £1,000 of income from.
- You can also save £1,000 of income from property you rent.
For help and advice on any personal tax matters, please contact our expert team.