As I write this, we are approaching the end of a tax year which means we have spent the last few weeks helping people use up their personal allowances. We keep in mind the saying ‘Look after the pennies and the pounds will look after themselves,’ which of course means that if someone takes care not to waste small amounts of money, they will accumulate capital.
Although Income tax has been around for many years, introduced by William Pitt in 1842, who became the Chancellor of the Exchequer at the age of 23, and Prime Minister at 24, we are still meeting many individuals who do not have a full understanding of how it all works and how we can reduce our tax bill.
The rules are always subject to change with the new budget to be announced on March 26th, 2025, but currently we all have a personal allowance of £12,570 (An amount you can earn without paying tax on). In fact this has remained unchanged since April 6th, 2023 and is planned to remain frozen until April of 2028.
If you don’t have more income than your £12,570 allowance, you can earn £5,000 of interest that you do not have to pay tax on and this is the Starting Rate for savings income. This is reduced by £1 for every £1 you are above your Personal Allowance.
In addition to this you may also receive up to £1,000 of interest and do not have to pay tax on this, depending on which Income Tax band you’re in. This is your Personal Savings Allowance. For basic rate tax payers it is £1,000, the higher rate is £500 and for additional rates it is zero.
We often see clients who are choosing not to take Pension benefits but are not yet receiving state Pensions and are not utilising these allowances.
Personal allowances reduce by £1 for every £2 you earn over £100,000. The tax you either pay or save is key to financial planning.
If you want a deeper understanding of this and how it corresponds to your own circumstances why not pick up a phone today and book a free without obligation consultation.
The content included on this page is based on our understanding of the UK tax law at the time of publication. It may be subject to change and may not be applicable to your circumstances.
* The content included on this page is based on our understanding of the UK tax law at the time of publication. It may be subject to change and may not be applicable to your circumstances.