Key allowances

  • Personal Allowance (PA) is £12,500 in 2019/20

PA is restricted where adjusted net income is more than £100,000. Adjusted net income is total taxable income before personal allowances, but after certain deductions, such as Gift Aid payments.

The restriction means that for every £2 of income over £100,000, PA is reduced by £1.

Where adjusted net income is £125,000 or more, PA will be lost completely.

  • Savings Allowance (SA)

The SA means a certain amount of savings income, such as bank and building society interest, can be earned tax free. SA varies, depending on marginal rates of tax:

  • SA for basic rate taxpayers £1,000
  • SA for higher rate taxpayers £500
  • SA for additional rate taxpayers £0.
  • Dividend Allowance (DA) is available to all taxpayers

With DA, the first £2,000 of dividend income is charged to tax at 0%. Thereafter, basic rate taxpayers pay tax at 7.5% on dividend income; higher rate taxpayers pay at 32.5%; and additional rate taxpayers pay at 38.1%.

  • Capital gains tax annual exempt amount £12,000. Additionally, assets can usually be transferred between spouses without tax.

Tip: retaining the personal allowance

  • A charitable donation under the Gift Aid rules can reduce adjusted net income, helping you keep the PA. It's usually best for the higher rate taxpayer in a couple to make the gift.
  • Pension planning can similarly help minimise loss of the PA. Consider whether you have scope to make a personal pension contribution by 5 April.