9 July 2018

A roundup of personal tax allowances

We provide an overview of the current personal tax allowances and prominent changes.

With prominent changes having been made to personal tax allowances, we have summarised the current personal tax allowances for you.

1. Personal allowance

The personal tax-free allowance rose to £11,850 from 6 April 2018 (from £11,500), this is the personal allowance for the UK (including Scotland).

However, please do refer to our bulletin on the Scottish Rates of Income Tax (SRIT) for the complex income tax bands introduced for Scottish taxpayers.

The current UK government’s commitment is to increase the personal allowance to £12,500 by the end of their term in office.  It remains to be seen if the government will continue with its original commitment in the light of Brexit.

2. Personal savings allowance (interest)

As a reminder, from 6 April 2016 interest has been paid gross (with no tax deducted at source) by banks and building societies.

Basic rate and higher rate taxpayers benefit from a personal savings allowance of £1,000 and £500 respectively. This means that the first £1,000 or £500 of interest received will be subject to a 0% tax rate. Note that it is not regarded as ‘exempt’ income as it still forms part of a taxpayer’s taxable income and utilises tax bands accordingly.

3. Dividend allowance

The way in which dividends are taxed changed dramatically on 6 April 2016.  Dividends no longer attract a 10% notional tax credit. Dividends are subject to tax at rates of 7.5%, 32.5% and 38.1% depending on your overall income level for the tax year.

A dividend allowance of £5,000 was introduced at the same time, and remained in place for 2016/17 and 2017/18 tax years.  However, no sooner had the allowance been introduced on 6 April 2016, with effect from 6 April 2018 (2018/19) it has been reduced to £2,000.  This reduction may bring further individuals into the self-assessment tax regime.

This means for the 2018/19 tax year you may pay additional income tax of £225, £975 or £1,143 depending on whether you are a basic, higher or additional rate taxpayer on dividends received (when compared with the 2017/18 tax year).

As with the personal savings allowance, income within the allowance is taxable at a 0% tax rate and uses up part of the available basic rate band. The allowance is available for all UK taxpayers regardless of whether they are basic, higher or additional rate taxpayers resident in Scotland or the rest of the UK.  If overall dividend income is below £2,000 no tax will be due on it.

4. ISAs

The Lifetime ISA (LISA) has now been within us for just over a year.  LISA savers receive a 25% bonus from the government on the money saved each year.  However, the ‘catch’ is that this money must be used for either retirement at aged 60, or for the purchase of your first home.

The annual investment limited for LISAs is £4,000 from 6 April 2018, but beware, the Lifetime ISA limit of £4,000 counts towards your annual ISA limit (see below).

The annual ISA limited is £20,000 for the tax year from 6 April 2018. 

The LISA and ‘regular’ ISA annual limits are unchanged from the previous tax year.

The Junior ISA (JISA) limit increased to £4,260 (from £4,128) on 6 April 2018.

5. Property and ‘Small’ Trading Allowances

These new allowances came in on 6 April 2017 for money earned from the ‘sharing economy’.

From April 2017 there are two new tax-free allowances of £1,000; one for selling goods or providing services and one for income from property you own.

People who earn up to £1,000 from occasional jobs, such as sharing power tools, providing a lift share or selling goods they have made, will no longer need to pay tax on that income. In the same way, the first £1,000 of income from property such as renting a driveway or loft storage will be tax free.

6. Capital Gains Tax – Annual Exemption

The capital gains tax annual exemption rose to £11,700 with effect from 6 April 2017 (from £11,300).

Capital Gains Tax (CGT) is a tax on the gain (profit) you make when you sell an asset that has gone up in value. It is paid at a basic or higher rate depending on the rate of Income Tax you pay.

UK taxpayers have an annual exemption for capital gains tax (CGT), which exempts capital gains from (CGT) if the gains in a single tax year are below the exemption.

The rates and exemptions are summarised in the table below:-

Tax Year                                                                             2017/18      2018/19
Annual exemption                                                               £11,300       £11,700
Basic rate taxpayer            Residential property gains           18%             18%
‘Other’ gains                                                                           10%             10%
Higher rate taxpayer          Residential property gains           28%             28%
‘Other’ gains                                                                           20%             20%

Capital Gains Tax on residential property does not apply to your main home, only to additional properties, for example a property that you let out.


If you have any questions about these changes or allowances, please do not hesitate to contact us.

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