Tax Planning

Income tax is tax you pay on income from sources such as employment or a pension. Most people have a tax-free personal allowance for income. This is currently £12,570. Basic-rate tax is then charged at 20% on income between £12,571 and £50,270. Higher-rate tax is charged at 40% on income between £50,271 and £150,000, and additional-rate tax is charged at 45% on income over £150,000.

In Scotland, there are five different bands for income tax. Starter-rate tax is charged at 19% on income over £12,571 to £14,732. Basic-rate tax is charged at 20% on income over £14,733 to £25,688. Intermediate-rate tax is charged at 21% on income over £25,689 to £43,662. Higher-rate tax is charged at 41% on income over £43,663 to £150,000. Top-rate tax is charged at 46% on income over £150,000.

Capital gains tax is a tax charged on profit when you sell or ‘dispose of’ an asset that has increased in value. Disposing of an asset can include giving it away as a gift or swapping it for something else. Everybody receives a tax-free allowance of £12,300 for capital gains tax. Any profits under this amount will not be taxed. The rate of capital gains tax is either 10% or 20%, depending on whether you pay basic-rate or higher-rate income tax. However, these amounts increase to 18% and 28% for capital gains made on residential property that doesn’t fall under ‘private residence relief’.

An Individual Savings Account (ISA) is the most common and simplest account for tax-free saving and investing. Money held in ISAs is free from income tax and capital gains tax. There is a limit on how much you can pay into an ISA each tax year and the annual ISA allowance is currently £20,000.

Pension carry forward lets you pay more than your annual allowance into your pension by ‘carrying forward’ any unused allowance from the previous three tax years (as long as you have sufficient earnings). You will still receive tax relief on the payments and it can be useful for those affected by the tapered allowance.

Everybody receives an annual allowance for dividend income received from shares held outside an ISA. The dividend allowance is currently £2,000. Any dividend income above this amount will be taxed at 8.75% for basic-rate taxpayers, 33.75% for higher-rate taxpayers and 39.35% for additional-rate taxpayers.