Category Archives: Tax Allowances

High Earners, Tax Allowances

Do High Earners Get a Personal Allowance?

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If you are a high earner then you may be questioning do high earners get a personal allowance? Well the answer really depends on what you class as a high earner as there are different answers depending on how much you earn.

You may be entitled to some or all of the personal allowance, which is the amount of earnings that is not subject to any tax.

A lot of people define high earners as those people who earn enough to pay higher rate tax so we wills tart with them. Anyone who earns enough to pay higher rate tax but who does not earn over £100,000 a year is entitled to the full personal allowance for that tax year.

However, once your earnings go above £100,000 for the tax year, the personal allowance starts to get taken away. It is reduced by £1 for every £2 of earnings above £100,000. So for example, if the personal allowance is £11,000 then anyone earning over £122,000 would not be entitled to any personal allowance and all of their earnings would be taxable.

If your earnings are £105,000 then you will only be entitled to £8,500 of personal allowance. This is calculated by dividing the excess earnings over £100,000 by 2 (5000/2 = 2500) and deducting that from the full personal allowance.

Earnings include any kind of benefits in kind as well as your salary but if you are in any doubt you should contact your accountant or HM Revenue for clarification.

Tax Allowances

Do Pensioners Get a Higher Personal Allowance?

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If you are over 65 do you get a higher personal allowance? This is a question which many pensioners may wonder about as they have heard that this might be the case.

Unfortunately the current answer to this is only a small amount, only if you are over 75 and only if you earn under a certain amount.

In the past both those over 65 and those over 75 were entitled to a higher tax free allowance than those who were under 65. However, those extra allowances have been phased out coinciding with the increase in the personal allowance for everybody. The last part of that phase is happening this year (2015/16) whereby those over 75 at 6 April are entitled to a personal allowance of £10,660 rather than the standard personal allowance of £10,600.

However, if you are in that category and have earnings in excess of £27,700 (and earnings means things like pension income), then your extra amount of personal allowance is reduced by £1 for every £2 of income you receive over this amount, to the minimal level of £10,600.

From 2016/17 onwards there will only be a single personal allowance rate for all ages and that will be £10,800 for 2016/17.

Personal Allowance News, Tax Allowances

Personal Allowances for 2017

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The personal allowances for 2017 have been announced and have been increased for all tranches of earnings from the allowance for zero tax to the 40% earnings threshold. This should mean a lower tax bill for most people although obviously it depends on whether earnings have increased in a similar manner.

The personal allowances for 2017 are as follows:

Personal allowance at zero rate tax – £11,200

Basic rate tax allowance – £32,400

Therefore the Higher rate tax threshold increases to – £43,600

The aim is to raise the higher rate tax threshold to £50,000 by the end of parliament and the personal allowance to £12,500 at the same point.

By 2017 we are referring to the tax year that runs from 6 April 2017 to 5 April 2018.

The basic rate of tax for 2017/18 is currently set at 20% (at time of publishing August 2015) and the higher rate tax is 40%. In addition there is an additional tax rate of 45% for earnings over £150,000.

 

Tax Allowances, Tax Rates, UK Budget

New Dividend Tax Introduced in 2015 Budget

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In recent years there have been a lot of changes to personal allowances and indeed other allowances that affect personal income.  Not only has the personal allowance increased significantly and more recently a tax free savings allowance was introduced, now there is another change to the tax charged on dividend payments to individuals.

The changes are a little bit complex and will affect quite a lot of people receiving dividend income, and not always for the better.

There is a new allowance of £5,000 per person per year on dividends which is tax free, but any dividend income over this amount will be taxed at a higher rate than previously, depending on the tax bracket of the individual.

A basic rate tax payer will need to pay 7.5% tax on amounts over £5,000, a higher rate tax payer will need to pay 32.5% and an additional rate tax payer will need to pay 38.1%.

These rates are effective from April 1016.

It may be useful to note that the new £5,000 savings tax free rate is in addition to this (for those who have low enough incomes) and so it may be worth getting some advice as to whether some shares should be switched to a different investment vehicle to minimise tax.

Tax Allowances, UK Budget

Full Details of Summer 2015 Budget Inheritance Tax Changes

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In the summer 2015 budget this week, George Osborne introduced some major changes to the rules on inheritance tax, so that properties were given an additional allowance that would take a lot of them out of the inheritance tax limits.

The current Inheritance Tax threshold is £325,000. This will remain but in addition there will be an allowance for family homes that are passed on to direct descendants (children and grandchildren). This new allowance will reach it’s maximum level of £175,000 in 2020/21 but will be tapered from 2017 onwards until it reaches that rate.

So a summary of the new allowance in tax years is as follows:

2017/18 – £100,000

2018/19 – £125,000

2019/20 – £150,000

2020/21 – £175,000

The nil rate band will then increase in line with the Consumer Price Index from 2021 onwards.

The allowance can be passed between couples so that when the first partner dies that allowance is passed on to the surviving spouse so that when they die the allowance is effectively doubled. Thus when the second partner dies the allowance could be worth up to £350,000. Add this to the standard Inheritance tax allowance (that can also be passed between spouses) and this would give a total value of £1m (remembering that £350,000 of this amount can only be held against property).

The existing £325,000 allowance can be used against any assets that the deceased holds, including property.

There has also been a clause introduced that means that if someone downsizes from their main residence, the value of their previous home can be taken into account. For example, an individual might choose to downsize from a home worth £250,000 to a home worth £150,000. They could still benefit from the maximum allowance of £175,000 in 2020-21 if they leave the home and £25,000 of other assets to direct descendants.

There will also be a tapered withdrawal of this new Inheritance Property Allowance for properties worth over £2m. The tapering will be at the rate of £1 for every £2 in value over £2m, for example:

Property worth £2,100,000 – IHT Property allowance is reduced by £50,000.

Therefore, property worth £2,350,000 (after 2020/21) will not have any property allowance attached to it.

E&OE

Tax Allowances, Tax Rates

£100k Tax Trap

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There is a point when you get to earning £100,000 a year where the personal allowance becomes a bit more complicated as the allowance is withdrawn gradually on earnings over this level. Some people refer to this as the £100k tax trap.

Basically the personal allowance is reduced by £1 for every £2 of earnings over £100,000. This means that one your earnings reach twice as much as the personal allowance, plus £100,000, you will no longer be entitled to any personal allowance and all of your earnings will be taxable.

Therefore your personal allowance and tax bands would be as follows, depending on your earnings:

For 2015/16

Earnings Personal Allowance 20% Band 40% Band Total Tax
£100,000 £10,600 £10,600-£42,385 £42,386-£100,000 £29,403
£102,000 £9,600 £9,600-£41,385 £41,386-£102,000 £30,603
£104,000 £8,600 £8,600-£40,385 £40,386-£104,000 £31,803
£106,000 £7,600 £7,600-£39,385 £39,386-£106,000 £33,003
£108,000 £6,600 £6,600-£38,385 £38,386-£108,000 £34,203
£110,000 £5,600 £5,600-£37,385 £37,386-£110,000 £35,403
£112,000 £4,600 £4,600-£36,385 £36,386-£112,000 £36,603
£114,000 £3,600 £3,600-£35,385 £35,386-£114,000 £37,803
£116,000 £2,600 £2,600-£34,385 £34,386-£116,000 £39,003
£118,000 £1,600 £1,600-£33,385 £33,386-£118,000 £40,203
£120,000 £600 £600-£32,385 £32,386-£120,000 £41,403
£121,200 £0 £0-£31,785 £31,786-£121,200 £42,123

Please note that these figures are purely theoretical and may not apply to your own personal tax circumstances as there may be other factors affecting your personal allowances and taxable income. This is just intended as a basic guide to illustrate how the personal allowance decreases after your earnings exceed £100,000.

Please take financial advice if you are in any doubt about your own personal tax circumstances.

E&OE

Tax Allowances

Marriage Allowance – A Misnomer?

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So there has been a lot of talk about the new marriage allowance – which is what the government are calling it – but should it really be called that? In the past allowances have most often been amounts of money that you can use to offset against your earnings to enable you to pay more tax.

There was a marriage allowance in the past which was called the ‘married couple’s allowance’ which was given to anyone who was married basically. Nowadays this old allowance is only valid for those people born before 1935 so the numbers are ever dwindling as to who is receiving it. This was a much more generous allowance too and did not depend on income.

The new ‘marriage allowance’ to my mind is a bit of a misnomer – it is not really an extra allowance but instead a transfer of one person’s existing allowance that they are not using, to the other partner in the relationship. In addition to that, you can only transfer it if your partner is not earning in the 40% tax bracket.  So really the allowance is more of a transfer than an actual allowance.

At the moment it is also not too easy to claim the allowance as the only way you can do so is online and with the correct documents – which many people may not have. if you don’t have these then there should be a telephone helpline opening up later in the year and all payments will be backdated so that no-one will lose out.

To find out more about the new marriage allowance, including how to claim it, check out our previous article on the subject.

Personal Allowance News, Tax Allowances, UK Budget

£11,000 Personal Allowance Announced

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In the Budget today George Osborne announced that the personal allowance would be increased to £11,000 a year with effect from the 2017/18 tax year. This will be preceded by another increase in the personal allowance to £10,800 for the tax year 2016/17.

There have been a number of increases in the personal allowance over the last few years and these increases come after the recent increase in the personal allowance for the year 2015/16 to £10,600.

Personal Allowance News, Tax Allowances

2014/15 Tax Allowances

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The main tax allowances for 2014/15 have increased to the following amounts:

Individual Personal Tax Allowance: £10,000

Individual Personal Tax Allowance for those who were born between 6 April 1938 and 5 April 1948: £10,500

Individual Personal Tax Allowance for those who were born before 6 April 1938: £10,660

So the personal tax allowances for all ages are starting to come into line and the idea is to increase the general personal allowance to £10,500 so there may not be any age advantage at some point in the future.

Personal Allowance News, Tax Allowances

Marriage Transferable Tax Allowance

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David Cameron has announced a new change to the personal allowance for married couples from 2015.

The change will benefit couples where one half is paying tax at the basic rate (but not higher) and the other half has some unused personal allowance (i.e. they will be earning less than £10,000).

The person who is not using all of their personal allowance is able to transfer over up to £1,000 of it to their other half to use. This will give a benefit of £200 to the person paying the basic rate tax (20% of the £1,000).

So if you are not earning enough to take up your full personal allowance then you need to look into transferring this to your husband or wife so that they do not need to pay as much tax from 2015. You will have to apply online to use this transferable tax allowance but not only is it available to married couples it is also available to civil partnerships.