We thought that we would update a previous article and examine how much someone can earn in the current tax year before paying any tax. Only the very rich would be able to achieve this maximum but let’s have a go and see how it can be done.
Everyone has a personal allowance of £11,500 with the sole exception of someone with taxable income in excess of £100,000. This could cover, for instance, state and private pension income up to this level. However, this would be much of an article if it stopped there. So, what else can be added?
Firstly, there are the property income exemption and trading exemption of £1,000 each which we have examined elsewhere in the newsletter. So, our rich taxpayer may be letting his paddock out to a stable for them to train showjumpers at £83 a month. At the same time, feeling a little bored with life, he starts a small yoga tuition business, again charging £83 per month.
Secondly, there is the dividend allowance of £5,000 (soon to be reduced to £2,000). Therefore, our rich pensioner can receive dividends up to this level without incurring any tax.
Thirdly, there is the savings starting rate band of £5,000, not forgetting the savings allowance of £1,000, enabling total interest of £6,000 to be received tax-free.
Fourthly, our wealthy taxpayer has a social conscience about living in a mansion so decides to let out the odd room in the East Wing and elects to make use of the “Rent a Room” scheme allowance of £7,500.
Adding all of the above together makes a grand total of £32,000.
Not bad, but we may be able to do even better. Being a bit mean our pensioner’s wife doesn’t have enough income to use all of her allowances. Therefore, she transfers 10% of her allowance (£1,150) to him. This additional allowance is used to cover further dividends of £3,066.
So, our grand total is £35,066! TAX FREE! Not bad if you can get it.
For more information about our personal tax services in Warrington, Cheshire.