Are you claiming all the tax reliefs you are entitled to?

As taxpayers, we will be familiar with the variety of taxes that we pay on various sources of our income, however, many of us may not be familiar with the variety of reliefs and exemptions that are available, some of these are automatically given and others must be claimed for. For example:

Personal Allowance

The standard Personal Allowance is £12,570, which is the amount of income you do not have to pay tax on. This is available to all taxpayers with a total taxable income of less than £100,000. Where the total taxable income exceeds this threshold, the Personal Allowance is reduced by £1 for every £2 over the £100,000 threshold. Therefore, there is no Personal Allowance available for those taxpayers with taxable income is £125,140 or more.

Married Couple’s Allowance

You can claim Married Couple’s Allowance (MCA) if all the following apply:

• you’re married or in a civil partnership;

• you’re living with your spouse or civil partner; and

• one of you was born before 6 April 1935.

For marriages before 5 December 2005, the husband’s income is used to work out Married Couple’s Allowance. For marriage and civil partnerships after this date, it’s the income of the highest earner.

The MCA for 2023/2024 is £10,375 with the relief being 10% of this figure, therefore it is essentially a tax reduction of £1,037.50.

MCA can be transferred or shared between spouses/civil partners to maximise the best tax reduction. If your income exceeds £34,600 for the 2023/2024 tax year, then the MCA is reduced, but it cannot reduce below the minimum allowance of £4,010 for 2023/2024. Therefore, in summary, claiming this allowance could reduce your tax bill by between £401 and £1,037.50 a year.

Marriage Allowance (MA)

If you were born after 1935 and do not qualify for MCA, then you may qualify for Marriage Allowance (MA) instead of MCA.

MA can be claimed by married couples/civil partnerships where both partners are lower/basic rate taxpayers; you cannot claim MA if either person is a higher rate taxpayer. MA allows the person with the lower income to transfer 10% of their Personal Allowance (£1,260) to their spouse or civil partner, thereby reducing the Personal Allowance of the transferor down to £11,310 and in turn, increasing the tax-free Personal Allowance of the transferee to £13,830.

The transferor must apply for the MA and a claim can be backdated for up to 4 years if appropriate.

MA transfers can be claimed online via www.gov.uk or by writing to HMRC at: PAYE, HM Revenue and Customs, BX9 1AS.

Please note that you can only qualify for either MCA or MA, you cannot claim for both.

Blind Person's Allowance

This allowance amounts to £2,870 for the 2023/24 tax year and is allowable regardless of age or income and is in addition to the Personal Allowance. It is also transferable to your spouse/civil partner if the qualifying person does not pay tax or has insufficient income to use all the allowance.

If you and your spouse/civil partner are both eligible, you can each receive this allowance.

Dividend allowance

Everyone is entitled to a tax free dividend allowance of £1,000 for the 2023/2024 tax year (previously £2,000) whereby the first £1,000 of dividend allowance may be received tax free.

Personal Savings Allowance

You may be entitled to claim up to £1,000 of interest tax free, this depends on which income tax band your total income falls within. If you are a basic rate taxpayer, you will be entitled to the full £1,000 tax free allowance and if you are a higher rate taxpayer, you may claim £500 of the tax free allowance.

If your income exceeds the higher rate tax band, then you are not entitled to any tax free relief.

Starting rate for savings

You may be entitled to receive up to £5,000 of interest tax free if you qualify for the starting rate for savings. This allowance is in addition to the Personal Allowance.

The amount of tax free starting rate band for savings that you may be entitled to is dependent on your other (non-savings) income. You will not be eligible for the starting rate for savings if your other income is £17,570 or more.

Property Allowance

If you receive less than £1,000 from rental income, this income will be covered by the £1,000 tax free property allowance and you need not complete a tax return to claim this.

If your rental expenses are less than £1,000, you can simply claim the £1,000 as a deduction instead of claiming your actual lesser amount of expenses. You need not keep receipts if you are claiming the £1,000 allowance.

If you decide to claim the £1,000 allowance, you cannot claim any other rental expenses to create a loss.

If you own a property jointly with someone else, you can each claim this £1,000 allowance.

Rent a Room Relief

If you let out a part of the home you live in, you can generate income from this source up to a tax free limit of £7,500 per year tax.

This is halved if you share the income with your partner or someone else.

The tax exemption is automatic if you earn less than £7,500. This means you do not need to do anything.

What do I do if the income is more than £7,500?

If you receive more than £7,500 per annum, then you must complete a tax return. On your tax return, you can then opt in to the rent a room scheme and claim your £7,500 (or your share) of the allowance on the Land and Property pages of your tax return.

Alternatively, you may decide not to opt into the scheme and instead keep a record of your income and expenses and declare these on the Land and Property pages of your tax return.

Who is eligible to claim rent a room relief?

You can opt into the scheme at any time if:

• you’re a resident landlord, whether or not you own your home

• you run a bed and breakfast or a guest house

You cannot use the scheme for homes converted into separate flats.

Trading Allowance

This allowance is similar to the Property Allowance and allows those with self-employment income of £1,000 or less to receive this income tax free. In the case where your income from self-employment exceeds £1,000, then you have the option to either deduct the £1,000 Trading Allowance or the actual expenses from your gross trading income.

Gift Aid donations

Claiming tax relief on Gift Aid donations to charity not only allows the charity to reclaim 25p for every £1 of donation you make, but for donors whose income exceeds the basic rate band, there is the option to make a reclaim for tax relief on the difference between the rate of tax the donor pays and basic rate tax . More information on this can be found on our previous blog here.

Claiming tax relief on donations of shares to charity can be have significant tax incentives as the value of the shares donated is completely tax deductible and there is no capital gains tax to pay by the donor on the disposal of the shares.