Nobody likes paying tax, but luckily our tax system offers legitimate opportunities to diminish tax payments. Clients can enjoy a substantial level of tax-free income and capital by taking advantage of the various allowances within the tax system…and it’s not that technical.
By carefully preparing and planning a multi-wrapper solution for clients with capital/disposable income to invest, we can help them achieve in excess of £50,000pa tax-free.
Let’s look at the allowances for 2020/21:
Income Tax Personal Allowance and Basic Rate Limits
- Personal Allowance (PA) is £12,500, income limit for the PA remained at £100,000
- Income tax rates stay at 20%/40%/45%
- Basic rate tax band remained at £37,500 except in Scotland, where differing rates apply for non-savings, non-dividend income, for more information on this please refer to this page.
- Additional rate tax band remained at £150,000.
Additional rate tax band remained at £150,000.
Capital Gains Tax
The CGT Annual Exempt Amount increased to £12,300 but the rates remained at 10% for gains within any remaining basic rate band & 20% thereafter. Capital gains on residential properties (not qualifying for Private Residence Relief) and the receipt of carried interest have rates of 18% & 28%.
Dividend Nil Rate
The first £2,000 of dividend income is taxed at 0%, although this does still count towards your client’s Adjusted Net Income and uses up the tax band it falls into. Dividend income above £2,000 is taxed at 7.5% at basic rate, 32.5% at higher and 38.1% at additional.
Personal Savings ‘Allowance’ (PSA)
The PSA allows tax free savings income of up to £1,000 depending on the client’s tax position.
Starting Rate for Savings
Starting rate limit (savings income) remains at £5,000 – it’s restricted by non-savings taxable income so that none of the band will be available if that income is above the client’s personal allowance plus the £5,000 starting rate.