Income Tax Allowances

The income tax Personal Allowance for the year 2021/2022 is £12,570. If your total income is less than this during the tax year, you have no tax to pay.

If you are on an income of less than £12,570 (2021/2022), your bank or building society can provide you with HMRC’s Form R85 to apply for your interest to be paid gross.

Tax rates 2021-22: Income Tax Personal Allowances

(1). The Personal Allowance reduces where the individual’s income is above this limit by £1 for every £2 of income above the limit. This reduction applies irrespective of date of birth.

(2). This allowance reduces where the individual’s income is above the income limit by £1 for every £2 of income above the limit until it reaches the level of the personal allowance for someone born after 5 April 1948.

(3). This allowance reduces where the individual’s income is above the income limit by £1 for every £2 of income above the limit until it reaches the minimum amount. Any reduction in the married couple’s allowance applies after any reduction to the individual’s personal allowance. Tax relief for the Married Couple’s Allowance is given at the rate of 10%.

(4). This is also the maximum relief for maintenance payments where at least one of the parties is born before 6 April 1935.

(5). Available to spouses/ civil partners born after 5 April 1935. This allowance is 10% of the personal allowance for those born after 5 April 1938 and allows a spouse or civil partner who is not liable to income tax above the basic rate to transfer this amount of their personal allowance to their spouse/ civil partner. The recipient must not be liable to tax above the basic rate. The recipient is eligible to a tax reduction of 20% of the transferred amount.

Income tax bands and rates 2015-2016

(6). If, after deducting your Personal Allowance from your total income liable to Income Tax, your non-savings income is above this limit then the starting rate for savings will not apply. Non-savings income includes income from employment, profits from self-employment, pensions, income from property and taxable benefits.

The rates available for dividends are zero per cent on the first £2,000, the 7.5 per cent ordinary rate, the 32.5 per cent dividend upper rate and the dividend additional rate of 38.1 per cent.

The self-employed can claim business expenses against their income. So make sure you include all possible justifiable business expenses on your self-assessment form. This also applies to capital allowances for expenditure on plant and equipment, including computers and tools, for example, used for your business.

It is worth remembering you may be able to pay further contributions to your pension, which can utilise unused tax relief.

Since its introduction in 1990, Gift Aid allows taxpayers to receive tax relief on gifts made to qualifying charities.

One other point to remember is if one spouse is a tax payer and the other is not or pays tax at a lower rate it is worth considering switching certain investments to take advantage of their unused tax allowances.