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Tax Allowances

The introduction of new allowances and exemptions in recent years, as well as increases in rates from April 2019, means the tax system has become more complicated for earners, savers and investors.

While the landscape has changed, there are various ways taxpayers can legitimately save tax through knowing where tax reliefs exist and how to benefit from them. You will receive some allowances automatically as part of the tax process. These include:

  • The personal allowance

The personal allowance has been rising over the past few years. In April 2019 the threshold under which people pay no tax, rose to £12,500. The higher rate threshold rose to £50,000 at the same time. In the 2010/11 tax year the allowance was

£6,475. Since 2010/11, anyone with an income of £100,000 and above will see their allowance tapered by £1 in every £2 of adjusted net income above that amount.

  • Personal savings allowance

The personal savings allowance allows you to receive savings income free of tax up to a set sum. For basic rate taxpayers that is £1,000; £500 is tax free for higher rate taxpayers; £0 for additional rate taxpayers. One thing to note is that it is not really an allowance; the income still counts as income within the band in which it falls, it is simply taxed at 0%.

  • Dividend allowance

In the 2019/20 tax year the dividend allowance enables investors to receive £2,000 of dividends (UK and/or overseas) free from tax, regardless of the individual’s marginal income tax rate and no matter what non-dividend income they may have. Over the £2,000, basic rate taxpayers will pay 7.5% on dividend income; higher rate taxpayers 32.5%; additional rate taxpayers 38.1%.

Effective tax planning is essential to ensure we are not paying more tax than we need to. The ever more complicated tax regime means it is very easy to be caught out. A well-constructed financial plan will include both the means to protect wealth as well as build it, including use of:

Capital gains tax annual exemption

The annual exemption for capital gains tax (CGT) for the 2019/20 tax year is £12,000. The CGT exemption can be overlooked in financial planning because it applies solely to gains from growth returns on capital not income. However, for anyone needing income, in addition to using their personal allowance, by taking capital growth gains as a lump sum beneath the CGT limit they can boost the money they have to use as income by up to £12,000 a year, tax free.


There are now numerous ISA wrappers in existence – some say too many – which enable individuals to save within the wrapper free of income and capital gains tax, or to receive a payment from government equivalent to a tax rebate. The most commonly used are cash and stocks and shares ISAs, which shelter any growth and income against tax. ISA savings are not exempt from inheritance tax (IHT) as they fall within a person’s estate for IHT purposes.

In the 2019/2020 tax year, the total amount you can save into an ISA is £20,000; that can be split across any of the ISA wrappers. The closing date for this year’s ISAs is 5 April and if you don’t use the tax shelter for that year you lose it.


Since the introduction of Pension Freedoms, pension policies have become one of the most attractive savings vehicles available, particularly for those in their late forties and beyond.  Providing income tax relief on subscriptions, which increases the amount invested, typically by at least 25%, the fund is then sheltered from income tax, capital gains tax and, in most instances, from inheritance tax.  In many cases the funds can be accessed from age 55 and whilst this may not be advisable, it certainly means for those approaching, or passed this age maximising pension contributions could be more appropriate than investing in ISAs.  Of course, for those fortunate enough to be able to, doing both is ideal.  Or, for those who don’t have the funds to do either but who have existing ISAs it may be appropriate to encash the ISAs and invest the proceeds in a pension, gaining tax relief on the way in - but obtain independent financial advice before doing so. 

Arrange a free initial consultation with a Lowes Consultant to discuss how we could help you.

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The information relating taxation is intended to be general in nature and may vary from your own personal circumstances. Tax legislation and the levels of relief from taxation can change at any time. If investors are in any doubt as to their tax position, they should consult their professional adviser.

Lowes Financial Management, Fernwood House, Clayton Road, Jesmond, NE2 1TL

Authorised and regulated by the Financial Conduct Authority.

About the author

Ian Lowes

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