In isolation, an individual tax relief might not seem much, but when you take advantage of the full range of available reliefs by planning your affairs correctly they can add up to a significant amount.
Take the Marriage Allowance as a small example. Introduced in 2015, this allowance was designed to reduce the tax liabilities of married couples and civil partners in the UK. It was projected that over 4 million couples would benefit from the new relief, but in 2018 it was estimated that 2 million eligible couples had failed to claim the allowance. In effect, this is ‘free money’ and it’s so simple to claim, if you’re eligible.
How do you know if you’re eligible? It’s available to you if you’re married or in a civil partnership, and one of you in the marriage is a standard (basic) rate taxpayer and the other is a non-taxpayer.
For example, Dave and Jane are married. Jane works full-time and earns a salary of £25,000 per year. This makes her a standard (basic rate) taxpayer. Dave is currently working part-time and earns £7,000 per year. In the tax year 2019/20, the tax-free personal allowance is £12,500. Given Dave’s earnings are well below this £12,500 limit, Dave pays no income tax on his part-time salary (he’s a non-taxpayer) and he has £5,500 of unused personal allowance (£12,500 less £7,000).
To take advantage of the Marriage Allowance, Dave can choose to transfer a portion of his unused personal allowance to Jane. The maximum Dave can transfer in 2019/20 is £1,250 – HMRC cap the amount available for transfer.
Jane will therefore save income tax on this transferred tax-free allowance at the 20% basic rate, saving her tax of £250 per year. Not a life-changing amount, we agree; but surely worth having in your bank account, rather than in HMRC’s coffers.
Even better, if Dave/Jane are eligible for the allowance in prior tax years, they can also back-date their claim for up to 4 tax years. In which case, Jane would receive a tax refund of £900, as well as the £250 in the current year – a total tax reduction of £1,150 as a result of making the claim.
This is just one very simple example of various tax reliefs/allowances that can save you money. If your affairs are more complex or you run your own business, there are several more valuable tax saving ideas you should consider.
These aren’t get rich quick, risky tax avoidance schemes (we don’t promote these). Instead, they are legitimate, sensible ideas for organising your affairs tax efficiently in line with the Law and best practice. Indeed, many of these ideas are actively promoted by the Government to stimulate economic and social development programmes.
If you would like to find out more about how we can help you with your personal and business tax affairs, please do get in touch for a no-obligation conversation – see our Contact Us page for how to reach us.
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Information in this publication is intended to provide only a general outline of the subjects covered. It should neither be regarded as comprehensive nor sufficient for making decisions, nor should it be used in place of professional advice. Whyatt Accountancy accepts no responsibility for any loss arising from any action taken or not taken by anyone using this material.