The world of personal, business and investment taxation can be relatively complex. While many of us sit back and pay the taxes we are due, it is essential to claim all your eligible tax-free allowances. Many of these will be automatic, but there are allowances which you will need to apply for, with literally billions of pounds going unclaimed each year.
While this is a comprehensive list, including all the tax-free allowances available in the UK is impossible. We will look to cover the main allowances and some you may have yet to hear of, but we advise speaking to your accountant to make sure you are claiming all allowances to which you are entitled.
Tax-free allowances – Personal
Many will spring to mind when it comes to personal tax-free allowances, but others are not so obvious.
Personal allowance – £12,570
Those earning less than £100,000 a year have a standard personal allowance of £12,570 for the 2023/24 tax year. This means the first £12,570 of taxable income is charged at 0%, commonly called the nil rate band. If you earn more than £100,000 a year, this tax-free allowance falls by 1 pound for every 2 pounds of your adjusted income above £100,000.
Marriage allowance – £1257
If you are married or in a civil partnership (and both basic rate taxpayers), you can transfer an element of your personal allowance to your partner. The maximum you can transfer is 10%, i.e. £1257, which is added to the allowance of the recipient. Therefore, your partner would have an enhanced personal allowance of £13,827, which equates to a maximum additional tax saving of £251 a year.
Tax-free childcare – £2000 a year/£4000 a year for a disabled child
You must set up an online childcare account to be eligible for tax-free childcare. For every 8 pounds you pay into the account, the government will add 2 pounds towards childcare. Depending on your employment status and income, you may also qualify for 30 hours of free childcare each week.
Blind person’s allowance – £2870
Those severely sight impaired and registered with their local council will likely be eligible for the blind person’s allowance. This is added to your personal allowance, and where a couple are both sight impaired, one can transfer their allowance to the other. In Scotland and Northern Ireland, the allowance is expanded to those unable to undertake work where eyesight is essential.
Carer’s allowance – £76.75 a week
While strictly speaking, not a tax-free allowance, caring for others is becoming an integral part of everyday life for many people. The carer’s allowance is available to those who provide an individual with at least 35 hours a week of care. It is important to note that you don’t need to live with the individual or be related as long as you provide the relevant care. Conservative estimates suggest that at least five million people are providing care, which makes them eligible for the allowance, but don’t currently claim it.
According to a recent report, the equivalent financial benefits to the economy of those not claiming a carer’s allowance equates to £162 billion a year, the cost of a second NHS.
Pension contributions – £60,000
The current pension contribution allowance is £60,000, wherein you will receive a tax rebate on pension contributions. If you had a personal pension fund over the previous three years, you can carry over any unused annual allowance.
Personal savings allowance – £1000
In line with an ongoing reduction in the capital gains tax allowance, the personal savings allowance was reduced from £2000 last tax year to £1000 for 2023/24. This is the maximum taxable savings interest which can be received tax-free each year. The allowance will fall to £500 in the tax year 2024/25, with speculation about a further reduction in the future.
Inheritance tax allowance – £325,000 (plus potential additional £175,000)
The inheritance tax allowance has been frozen at £325,000 since 2009, with a recent announcement that it will remain unchanged until 2028. This is the rate at which there is no inheritance tax charge on your estate, but once you exceed the allowance, the rate is 40%. In 2015, the government introduced an additional allowance of £175,000, which shields your primary residence from inheritance tax if it is passed on to your children or grandchildren.
Gift allowances – Various
There are various gift allowances such as the annual gift exemption, up to £3000 a year, one-off gifts of £250 per person per year, and wedding gifts of between £1000 and £5000, dependent on the family member/friend. The one-off gift allowance is only eligible for those not benefiting from the annual gift exemption allowance.
Investment -Tax allowances which can help reduce your long-term tax liability
When it comes to investment, there are several allowances which can help reduce your long-term tax liability.
Capital gains allowance – £6000
The capital gains tax allowance was reduced from £12,300 in the tax year 2022/23 to £6000 in 2023/24 and will fall to £ 3,000 in the following tax year. This allowance relates to the sale of assets and investments, which result in a taxable capital gain. The tax rate charged on gains over your allowance starts at 10% (18% on non-primary residential property) for basic rate taxpayers, rising to 20% (28% on non-primary residential property) for higher rate taxpayers.
Dividend income allowance – £1000
The dividend income allowance was reduced from £2000 to £1000 in the 2023/24 tax year and will fall to £500 in the 2024/25 tax year. This allowance relates to dividend payments, with any income above the allowance added to your taxable income.
ISA allowance – £20,000 (£9000 Junior ISA allowance)
Many people have taken the opportunity to invest up to £20,000 a year (£9000 for children) in an ISA, where capital gains and income are shielded from tax. The cumulative impact of long-term returns and tax benefits can be significant.
Employment
In general, when we move on to business, there is a significant reduction in the tax allowances available for employees.
Employee gifts – £50
There is no tax liability when you decide to reward an employee with a gift worth up to £50. The gift cannot be cash or a cash voucher, nor is it linked to their work performance or part of their contract. This is often referred to as a “trivial benefit”.
Passing exams – £25
In what is deemed an “encouragement award”, you can make a tax-exempt gift of up to £25 to an employee. This could be the result of passing an exam or a similar achievement.
Good ideas at work – £5000
Where an employee makes a suggestion which could save or make money for the business, a financial benefit award of up to £5000 can be made tax-free. The exemption is based on the higher of; 50% of the money expected to be made/saved in the year after it is implemented or 10% of funds made/saved in the first five years – up to a maximum limit of £5000.
Employment allowance – £5000
Where eligible, a company can apply for an employment allowance to reduce their annual national insurance liability by up to £5000. This is especially useful for small businesses and can assist short-term cash flow.
Christmas party allowance – £150
Last, but by no means least, there is a tax-free allowance of up to £150 per person for the company’s annual Christmas party. Happy Christmas!
Tax-free allowances – Summary
Whether looking at personal finances, investment or business, many people are missing out on billions of pounds of tax-free income each year. While a lot of the above allowances are relatively straightforward and known by many people, there are some which will surprise you. Individually, they can create modest savings, but cumulatively, they can significantly impact your cash flow and wealth.
It is essential to use all of the tax allowances to hand, individually or as a business. Contact us today, and we can go through your situation in detail to identify missed savings opportunities.