Individuals are entitled to a number of allowances each year. However, many of them are lost if they are not used in the tax year to which they relate. With the end of the tax year approaching on 5th April, we consider a range of allowances which you may need to review to ensure you are making the most of them before they expire.
Personal allowance
The personal allowance for 2021/22 is set at £12,570.* If you have not fully utilised your personal allowance, speak to your accountant for advice on increasing your income for 2021/22, for example by paying a bonus or dividend. If you’re unable to use all of your allowance, you might be able to claim the marriage allowance – which lets you transfer 10% of your unused personal allowance to your partner. In addition, if you or your spouse were born before 6th April 1935 you may be able to claim the married couple’s allowance. Your accountant can advise you on how to claim these allowances.
*The personal allowance is reduced by £1 for every £2 by which adjusted net income exceeds £100,000. This means that individuals whose income exceeds £125,140 will not receive a personal allowance for 2021/22.
Dividend allowance
The dividend allowance is actually a nil rate band and dividends falling within the band (currently set at £2,000) are taxed at a zero rate. Dividends are taxed as the top slice of income. Your accountant can help you review your dividend strategy prior to 6 April 2022 and, if you have sufficient retained profits, you can then consider paying additional dividends to utilise any unused dividend allowances.
Savings allowance
A separate allowance is available for savings. The allowance is set at £1,000 for basic rate taxpayers and at £500 for higher rate taxpayers (it is not claimable by additional rate taxpayers). Couples should look at how their savings are held to ensure that allowances are not wasted. For example, if one partner is an additional rate taxpayer and the other is a basic rate taxpayer, ensuring any savings income accrues to the partner paying tax at the basic rate will ensure that the first £1,000 is tax-free rather than taxable at the additional rate. Your accountant can help you to work out how best to use your savings allowance.
Capital Gains allowance
A five-year freeze on the main CGT annual allowances is currently in place and for individuals the annual allowance arising from CGT is £12,300. That means if you have an asset that you plan to sell for more than you paid for it you might have to pay CGT if the gain is more than £12,300. If you have multiple assets you can save CGT by making use of each years capital gains allowance by making disposals over multiple tax years.
