Making the most of these allowances can give your finances a boost this year.
We are now into a new tax year, and that means a host of new allowances and rebates to get your head around.
Here are some of the big ones that can make a real difference to your wealth over the next 12 months.
Stamp Duty holiday
The Stamp Duty holiday was introduced last year as a way of boosting the housing market after the initial lockdown and had been due to conclude in March 2020.
However, it’s now been extended for six months, meaning homebuyers continue to pay no Stamp Duty on the first £500,000 of any transaction.
For more, read our guide to the big announcements from the Budget.
Everyone benefits from an annual allowance covering how much they can put into an ISA each tax year.
The allowance itself is unchanged in the new tax year at £20,000, and you can split that across the various types of ISA, though some ISAs have their own limits within that allowance.
With a Lifetime ISA for example you can only save a maximum of £4,000 a year.
We’ve run through the different types of ISA, and who they are best suited for.
The personal allowance is how much you can earn each year before you start paying Income Tax.
For 2021/22 it is increasing from £12,500 to £12,570, which works out at £1,048 per month. The personal allowance starts
You may be able to increase your personal allowance by making use of the Marriage Allowance. This allows one partner to transfer some of their unused allowance to their higher-earning partner.
Crucially, the higher-earning partner needs to be a basic rate taxpayer, rather than paying the higher or additional rate of Income Tax, but it’s a perk that can cut your tax bill by hundreds of pounds a year.
Personal savings allowance
Everyone enjoys a personal savings allowance, which as the name suggests, covers the income that you can make from your savings each year without having to pay tax on those returns.
For 2021/22 this stands at £1,000.
Rent a Room relief
If you have a spare room, you can help yourself to a significant tax-free income by taking on a lodger.
Thanks to the Rent a Room relief scheme, you can pocket £7,500 a year from rent before you have to start handing any over to the taxman.
Capital Gains Tax allowance
Capital Gains Tax has been under the spotlight, with the Treasury tasking the Office for Tax Simplification with looking at ways it can be improved last year.
But it hasn’t acted on any of the OTS’s suggestions as yet, which is why taxpayers all continue to enjoy a £12,300 annual allowance covering the proceeds from sales of assets, which is unchanged from the last tax year.
Some stocks and shares that you invest in will pay you dividends ‒ effectively your share of their profits.
This is unchanged at £2,000 for the 2021/22 tax year.
If you’re looking for a bit of a side hustle, then you might want to trade items on sites like eBay and Etsy.
Thankfully, you don’t immediately have to pay tax on the proceeds from your sales. Instead, you get a £1,000 annual allowance ‒ it’s only if you make more than that that you will have to start handing a portion over to the taxman.
Along similar lines, there are ways to make money from your property without taking in a lodger, for example by renting out some spare space as storage or by letting out your driveway.
Again there’s a £1,000 annual property allowance before you start paying tax.
Working from home
The last year has seen many of us spend a lot of time working from home.
And doing so doesn’t come cheap. Thankfully, you can claim tax relief on the expenses of working from home.
You have two options here ‒ you can go for the simplified option and claim £6 per week, or you can try to claim the exact relief based on your spending.
With the latter option, you’ll need to be able to produce records to back this up so it is a little more labour intensive.
Saving into a pension is one of the most tax-efficient things you can do, but there are limits on just how much you can stick into your pot.
The annual allowance for pension contributions is unchanged at £40,000 for 2021/22, while the lifetime allowance stands at £1.073m.
There are few taxes that provoke quite the strength of feeling that you get with Inheritance Tax.
Estates have to pay 40% on their value above the £325,000 threshold (rising to £650,000 for couples), but making use of your annual gift allowances is one simple way to reduce your eventual tax bill.
You can give away £3,000 each year, while there are also exemptions for weddings (you can give up to £5,000 to the couple depending on your relationship with them), as well as normal gifts out of your income so long as they don’t reduce your standard of living.
For more on gift allowances and how they can help you save cash in the long run, check out our guide to Inheritance Tax.
Be the first to comment
Do you want to comment on this article? You need to be signed in for this feature