If you’re putting the finishing touches on your tax return, keeping your bill as low as possible is vital. And there are plenty of tax-free allowances available that mean you can earn money without having to part with a chunk of tax.
New tax-free allowances for savings and investment dividends only arrived in April 2016, so they won’t save you any money on your bill for the 2015/16 tax year, which must be paid by 31 January.
Nevertheless, it’s possible to trouser £27,760 in 2015/16 without paying any tax, even before taking advantage of an Isa or a pension.
These extra allowances will help you save on this year’s tax bill. When combined with increases to your other personal allowances for the 2016/17 tax year, your total potential tax-free income will rise to £34,200
Here’s Which?’s breakdown of the crucial allowances you should know about.
Use the Which? online tax calculator: our easy-to-use and jargon-free tax calculator offers personalised tax tips, and you can submit the form directly to HMRC.
What is it? The amount that all but the highest earners can earn before tax is charged.
How do you qualify? Most people get it, though high earners will lose £1 of their allowance for every £2 they earn above £100,000. People who earn £122,000 per year lose it completely.
How much can you earn tax free in 2015/16? £10,600
How much can you earn tax free in 2016/17? £11,000
Find out more: Tax rates, allowances and amounts – all your allowances in one handy guide
Capital gains allowance
What is it? The Capital Gains Annual Exempt Amount, to give it its formal title, is the amount of money you can each year by selling assets, before you need to start paying capital gains tax (which can be as much as 28%).
How do you qualify? Anyone can claim it, but it only helps you if you’re selling assets, such as property or shares outside a pension or Isa, you already own.
How much can you earn tax free in 2015/16? £11,100
How much can you earn tax free in 2016/17? £11,100
Find out more: Capital gains tax explained – our jargon-free guide
Starting rate for savings
What is it? An extra tax-free allowance for people who earn interest from savings and have an annual income below £15,600.
How do you qualify? If your income from other sources, such as wages or pension, is less than the personal allowance, savings interest up to £5,000, is tax-free. The allowance is reduced by £1 for every £1 you earn over the personal allowance. People with income above £15,600 in the 2015/16 tax year lose it completely.
How much can you earn tax free in 2015/16? £5,000
How much can you earn tax free in 2016/17? £5,000
Personal savings allowance
What is it? The amount of interest you can earn from savings before paying tax.
How do you qualify? Savings income is now paid tax free, but you have to declare it on your tax return.
How much can you earn tax free in 2015/16? Nothing – taxes on savings changed in April 2016.
How much can you earn tax free in 2016/17? £1,000 for basic-rate (20%) taxpayers, £500 for higher-rate (40%)taxpayers. Additional-rate (45%) taxpayers get no savings allowance.
Find out more: Tax on savings – detailed advice on managing your nest-egg
Transferable tax allowance for married couples & civil partners
What is it? A way for married couples (and those in civil partnerships) to shift unused personal allowances to cut down their combined bill.
How do you qualify? A lower-earning spouse can pass 10% of their personal allowance to their partner, as long as neither pays more than the basic rate of tax.
Don’t forget… If you were born before 6 April 1935, you may qualify for the more generous married couples allowance
How much can you earn tax free in 2015/16? £1,060
How much can you earn tax free in 2016/17? £1,100
Find out more: Married couples allowance – the financial perks of partnership
What is it? A new tax-free allowance for income from dividend, part of the profits a company pays to shareholders.
How do you qualify? Everyone qualifies – but you’ll only benefit if you hold shares outside an Isa. Income tax isn’t paid on shares held in an Isa.
How much can you earn tax free in 2015/16? Nothing – the dividend allowance arrived in April 2016.
How much can you earn tax free in 2016/17? £5,000
Find out more: Dividend tax – get the lowdown on the tax-free allowance
Individual savings accounts (Isas)
All income or capital gains you make from savings or investments held in an Isa are paid tax free, so there’s no limit to the amount you can get from an Isa without paying tax – though it depends on how much you’ve saved. Hundreds of people in the UK now have seven-figure Isas, meaning an extra £40,000 tax-free each year is within the realm of possibility.
There are however, limits to the amount you can save annually into an Isa. In 2015/16, the Isa limit was £15,240, and this is unchanged in 2016/17. Come April 2017, however, you’ll be allowed to save up to £20,000.
Find out more: Which?’s guide to cash Isas – everything you wanted to know about Isas
There’s another way to reduce your tax bill to zero, and that’s through pension contributions. You can pay your total income into a pension, up to £40,000, each year. You won’t pay any tax on your contributions, and will earn tax relief equivalent to the income tax rate you normally pay.
If you don’t have an income, or have a very low income, you can save up to £2,880 into a pension and earn tax relief, boosting your pension contribution to £3,600 a year.
Find out more: Tax on pensions – find out how tax and pensions work