Did you know that your income can massively increase your personal tax bill? Find out how to reduce it now by reading below.

What do I need to know about my Income?

You should be aware that there will be rates and allowances that will apply when you receive an income.  The amount that you pay will be based upon where you live in the UK.

Dividends

The annual dividend allowance remains at £2,000 for 2019/20 after reducing from £5,000 last year.

The new personal allowance of £12,500 added to the frozen dividend allowance, means that you could receive a tax-free income of up to £14,500 in 2019/20.

You will be taxed on anything that isn’t already covered by the personal allowance, regardless of where you live in the UK:

•             7.5% for basic-rate taxpayers – £14,500 to £50,000

•             32.5% for higher-rate taxpayers – £50,000 to £150,000

•             38.1% for additional-rate taxpayers – above £150,000

Capital Gains

If you have chargeable assets that have increased in value, your profit will be liable to capital gains tax (CGT).

The thresholds for income tax 2019/20 within the UK:

•             Personal allowance – up to £12,000 no tax

•             Basic rate – over £12,500 – £50,000 will be taxed at 20%

•             Higher rate – over £50,000 – £150,000 will be taxed at 40%

•             Additional rate – above £150,000 will be taxed at 45%

The tax-free allowance for these gains in 2019/20 is £12,000, or £6,000 for assets that are held in trust.

You should be aware that if the gain is over the tax-free allowance when added to your personal income, then the CGT payable will be at the rate of 10%.

If you are selling a property, which is not your principle private residence, then the rates will differ at 18% in the basic-rate band and 28% above the basic-rate band.

Rent- a- room

It is possible to earn extra income without being taxed if it is under the governments rent-a-room scheme, as this allows you to earn tax-free income of up to £7,500 by letting out a room in your home.

Example

If you are renting a room but earn more than £7,500 and want to claim the allowance, then you can still opt in to the scheme. But it may be more tax-efficient to deduct expenses from the income.

You should note that if you rent out your spare room through Airbnb, you can claim the allowance by letting out a room in your main home to holidaymakers.

If you own the property with your partner, then the relief will be halved if you share the income.

£1,000 tax-free allowance

You should be aware that if you let a property and it does not qualify for the scheme, then you should be aware that there is a £1,000 property allowance that will apply to you instead.

If you are trading through selling small amounts on eBay or Amazon, then you should be aware that there is also a £1,000 trading allowance that is available.

You should be aware that if you do claim any of the expenses listed above then you will not be able to deduct any business expenses.

Foreign income

If you are a UK resident but are not based in the UK, then you may have to pay UK tax on your foreign income.

Foreign income or gains for non-domiciled UK tax residents will be taxed if they exceed £2,000 in 2019/20.

If you have foreign income of more than £2,000, then you may be able to claim the remittance basis, which means that you will only pay tax on what you bring into the UK.

If you don’t claim the remittance basis you will pay UK tax on your worldwide income.

You should note that you will lose your tax-free allowances and may have to pay an annual charge if you go down this route.

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Any questions?
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• You can email us at growth@jondaviesaccountants.co.uk