Chancellor Philip Hammond announced a range of new tax rates and allowances in this week’s Autumn Budget. But how much tax could they save you?
It was repeatedly stated that ‘austerity is coming to an end’ in this year’s Budget, with Mr Hammond raising the personal allowance and upping other tax-free thresholds.
If you’re savvy about using the rules, we’ve worked out that you could earn income of up to £21,750 tax-free in 2019-20. That’s £750 more than you could earn in 2018-19.
What’s more, you could gain another £21,500 without paying any tax by using other tax-free allowances and reliefs.
Which? reveals how to maximise your allowances and keep your taxes to a minimum in the next tax year.
Use up your tax-free earnings
There’s a certain amount of money you’re allowed to earn tax-free each year by taking advantage of allowances that are applicable to you.
Click the links below to find out more about each one:
If you buy, sell or rent anything of value, you could also use up a number of other allowances:
- £12,000 from selling assets
- £7,500 from renting out a room
- £1,000 from trading
- £1,000 from your property
Your income and circumstances will affect whether you’ll be eligible for all of these allowances.
The personal allowance is the amount of money you can earn each year before being charged income tax.
Everyone will receive an increased personal allowance of £12,500 in the 2019-20 tax year, regardless of whether you’re employed or self-employed.
This is up from £11,850 in 2018-19.
The graph below shows how the personal allowance threshold has changed over the past few years.
Earnings between the personal allowance and £50,000 will be charged at the basic-rate of 20%. Meanwhile, income between £50,000 and £150,000 attract the higher-rate of 40% and earnings of more than £150,000 are charged at the additional-rate of 45%.
If you earn more than £100,000 you’ll also start to lose the amount of personal allowance you’re entitled to. For every £2 over £100,000 that you earn, your personal allowance will be reduced by £1.
So, if you earn £125,000 or more, you’ll have no personal allowance and will have to pay income tax on all of your earnings.
Aside from cutting your income tax bill, the higher tax thresholds could also reduce the amount of other taxes you pay – especially if you were previously close to a threshold.
For instance, if you earn £47,000, in 2018-19, you’d pay 40% income tax, but also higher rates of dividend tax and capital gains tax, plus your personal savings allowance would be reduced.
In 2019-20, however, you’ll be in the basic-rate tax band, meaning that you’ll pay reduced rates of all these taxes.
These tax changes do not apply to those in Scotland. Any changes to income tax in Scotland will be announced in the Scottish Budget in December.
- Find out more: tax-free income and allowances
The dividend allowance will be £2,000 in 2019-20, unchanged from 2018-19.
If you have invested in company shares, you might earn dividends as part of your income. If you earn more than £2,000 from this income, you’ll be taxed based on your income tax rate.
The rates are shown below:
Check how much you’re likely to pay in dividend tax with our dividend tax calculator below:
- Find out more: dividend tax
In 2019-20, the capital gains allowance will increase to £12,000, up from £11,700 in 2018-19. This is how much you can earn in profit from selling assets before paying tax.
The graph below shows how the capital gains tax personal allowance has crept up over the past few years.
If your assets are owned jointly, you can use both of your allowances when they are sold, bringing the allowance up to £24,000.
Capital gains tax rates will remain the same as in 2018-19, and depend on the rate of income tax that you’d usually pay.
Basic-rate taxpayers pay 10% on assets, and 18% on property. Higher or additional-rate taxpayers pay 20% on assets and 28% on property.
If you make losses on the assets you sell, you can offset these against your gains.
- Find out more: how capital gains are taxed
This is the combined £1,000 personal savings allowance and £5,000 savings starter rate.
The personal savings allowance and savings starter rate of £5,000 will remain unchanged in 2019-20.
The amount of tax-free income you can earn from your savings depends on your salary.
If you earn less than the personal allowance (which is rising to £12,500) you’ll be eligible for the full £5,000 savings starter rate, as well as a £1,000 personal savings allowance.
For each £1 you earn over the personal allowance, the savings starter rate will be reduced by £1. This means that anyone earning up to £17,500 will be able to benefit from the savings starter rate, as well as a £1,000 personal savings allowance.
The personal savings allowance is reduced to £500 for those paying higher-rate tax, and doesn’t apply to additional-rate payers at all.
The extension of the basic-rate threshold to £50,000 means anyone who has now moved down to becoming a basic-rate taxpayer will be able to enjoy more tax-free savings income.
- Find out more: personal savings allowance and tax on savings interest
Those who are married or in a civil partnership may benefit from marriage allowance.
To be eligible, one partner must be earning less than the personal allowance (£12,500 in 2019-20), and the other partner must be a basic-rate taxpayer earning between £12,500-£50,000.
The lower-earner can transfer 10% of their personal allowance to their partner, who then receives a tax credit for this amount, up to a maximum of £1,250.
This effectively means that the higher-earning partner will be able to earn £13,750 before tax, rather than £12,500.
The tax credit is deducted from the amount of tax the higher-earning spouse would have had to pay, meaning they’ll keep more of their salary each year.
- Find out more: Marriage allowance explained
The trading allowance was introduced in 2017 to allow anyone to earn money from buying or selling low-value items without paying tax on the profits.
This includes auctioning eBay items, creating crafts to sell on Etsy or doing odd jobs through sites like TaskRabbit or Airtasker.
You can earn up to £1,000 before having to declare the income to HMRC. Earning any more than this will mean having to submit a self-assessment tax return.
- Find out more: Who should submit a tax return?
You can earn up to £1,000 from your property before having to pay tax on extra earnings.
This allowance is often used if people do things like rent out their driveways for special events, or allowing their property to be used by film crews.
The allowance is unlikely to cover what you earn from renting a room, so using the Rent-a-Room scheme would probably be a better idea.
The Rent-a-Room scheme threshold has also been frozen since the 2018-19 tax year, remaining at £7,500.
This is the amount you can earn tax-free from renting a room in your home through the scheme, though you have to be living in the home.
If you earn more than this, you’ll have to submit a self-assessment tax return and declare these earnings.
Alternatively, you can pay tax through self-assessment as though you’re renting the whole property. Income you earn through rental income is taxed on your profits, so whatever is left over after you deduct things like cleaning fees and buildings insurance.
- Find out more: How rental income is taxed
Save more on tax with an Isa
The annual Isa allowance will remain at £20,000 for the 2019-20 tax year.
This is the maximum overall amount you can pay in to any cash, stocks & shares, innovative, lifetime or Help to Buy Isas you may hold. You can mix and match how you pay in the money, as long as it doesn’t exceed £20,000.
Some Isas have smaller maximum deposits, as illustrated in the graph below:
The threshold for how much you can pay into Junior Isas, however, has increased to £4,368. This is up from £4,260 in 2018-19.
If you’re paying into your child’s Junior Isa, the payment won’t come out of your own Isa allowance – it is separate.
- Find out more: Junior Isa rules and allowances