Podcast Summary
Tax allowances for income under a threshold: Individuals can earn up to £1,000 tax-free from self-employment or casual services, reducing potential tax liabilities
Tax allowances in the UK for the 2024/25 tax year allow individuals to earn a certain amount of income before having to pay taxes on it. For instance, the trading allowance enables individuals to earn up to £1,000 in income from self-employment or casual services like dog walking without paying taxes. This allowance can significantly reduce tax liabilities for those earning below the threshold. Remember, this is just one of the tax allowances available, and the rules can vary depending on the specific circumstances. Always consult with a financial advisor for personalized advice.
Understanding tax allowances to reduce tax liability: The trading allowance exempts initial income from selling items, while the personal allowance lets first £12,570 income from employment be tax-free. Other tax allowances like marriage allowance, blind person's allowance, and inheritance tax nil-rate band can also help reduce taxable income.
There are various tax allowances that can help reduce your taxable income. The trading allowance is the first one, which exempts the initial income earned from selling items, but only if you're not making a profit. The most crucial tax allowance for most people is the personal allowance, which for the 2024-25 tax year remains at £12,570, allowing the first £12,570 of income earned from employment to be tax-free. However, with rising inflation and wages, this fixed tax allowance might not keep up with the increasing cost of living. Other tax allowances include the marriage allowance, the blind person's allowance, and the inheritance tax nil-rate band, among others. Understanding these tax allowances can help you make the most of your income and potentially reduce your tax liability.
Understanding Personal Allowance: The personal allowance of £12,570 doesn't mean no tax until that amount, but rather, tax-free income for the first few months and tax on remaining months for those earning above it.
The personal allowance of £12,570 does not mean you won't pay income tax until you earn that amount. Instead, your annual income is estimated based on your monthly salary, and you pay tax accordingly. For example, someone earning £20,000 won't pay tax on the first £12,570, but will pay 20% tax on the remaining £7,430, equating to around £1,500 in income tax per year. To keep take-home pay stable, this tax is spread out over the 12 months. So, you don't pay no tax on the first £12,570, but rather, you'll have tax-free income for the first few months and pay tax on the remaining months. If you earn £12,570 or less, you won't pay any income tax. When I started my first job, I was confused about why my take-home pay seemed lower than others, but it turned out that the tax codes were different, and understanding the personal allowance helped clarify the situation.
Understanding Tax Allowances for Investors: Investors must be aware of capital gains and dividend tax allowances, which can impact investment profits and income. Currently, capital gains tax allowance is £3,000, and dividend tax allowance varies. Keep informed to maximize returns.
As an investor, it's crucial to be aware of various tax allowances that can impact your investments and income. The capital gains tax allowance is the amount of profit you can make from investments without paying tax, but it has been decreasing in recent years. Currently, it's £3,000, meaning any profit exceeding this amount will be taxed. The dividend tax allowance, on the other hand, relates to taxes on dividends received from investments outside of tax-efficient accounts. Both distributing and accumulating funds receive dividends, but only distributing funds provide cash dividends, and tax is due on both types. Keep in mind that checking your payslips to ensure the correct tax code and tax amount is essential. These tax allowances are subject to change, so staying informed is key for maximizing your investment returns.
Maximizing investment returns through tax efficiency: Invest within a Stocks and Shares ISA to avoid capital gains tax and dividend tax, and make the most of your £20,000 annual allowance.
Understanding the tax implications of investing in different types of funds and utilizing tax-efficient accounts can help minimize your tax liability. Most investment funds distribute dividends annually, but the frequency may vary depending on the fund type. The UK government has reduced tax allowances for capital gains tax and dividend tax in recent years, which means that in the new tax year, individuals can earn up to £500 in dividends tax-free. To avoid paying capital gains tax and dividend tax on investments, consider investing within a Stocks and Shares ISA, which offers a £20,000 annual allowance and tax-free gains and dividends for UK residents over 18. For instance, Trading 212, a popular provider for stocks and shares ISAs, offers low fees and a user-friendly app. By staying informed about these tax rules and utilizing tax-efficient accounts, you can optimize your investment strategy and keep more of your hard-earned money.
New investors on Trading 212 can get a 1% cashback on ISA deposits and a free fractional share worth up to £100: New investors on Trading 212 can earn a 1% cashback on ISA deposits and receive a free fractional share worth up to £100 during the 2024-25 tax year. Be mindful of savings interest tax if your interest exceeds your tax band allowance.
New investors on Trading 212, who open their accounts by April 30, 2024, can participate in a 1% cashback campaign on ISA deposits made during the 2024-25 tax year. Additionally, new sign-ups can receive a free fractional share worth up to £100 using the code s and s bonus or the link in the episode description. It's also important to note that savings interest is taxable, and the savings interest tax allowance depends on your income tax band. Basic rate taxpayers have a £1,000 allowance, higher rate taxpayers have £500, and additional rate taxpayers get nothing. If you have a savings account paying 5% interest and exceed the threshold for your tax band, you may have to pay savings interest tax, which is just added to your income and taxed accordingly.
Exploring tax-saving options for the new year: Consider premium bonds for tax-free payouts, cash ISA for tax shielding, and stocks and shares ISA for long-term growth. Utilize your full ISA allowance by opening both a cash and stocks ISA.
There are several tax allowances that can help individuals save money as they enter the new tax year. One alternative to consider is premium bonds, which are government-backed bonds that offer tax-free payouts. Another option is a cash ISA, which shields savings from tax. However, for the most long-term potential benefit, a stocks and shares ISA is recommended. It's important to note that most people don't utilize their full ISA allowance, so opening both a cash and stocks and shares ISA could make sense for those with smaller contributions. Overall, being aware of these tax allowances can help individuals make informed decisions about their savings and maximize their tax efficiency.
