If you are unsure of how to go about your personal tax planning and management, this is a very basic guide to get you started. If you are concerned with saving as much money as possible, while complying with UK rules and regulations, this guide is for you.
Wondering if you are earning over your personal tax allowance? Unsure if you need to fill out a self-assessment tax return? Wondering if there is tax relief on child care? Or receiving a monetary gift, but don’t want to pay income, gift, or inheritance tax on it? Read on, your answers are here.
In the UK, you have a personal tax allowance of £12,500, meaning you do not pay any tax on the first £12,500 you make, and beyond this amount, you fall into tax brackets. This allowance can be mitigated by paying into a private pension scheme, transferring 10% of the allowance to your low-earning spouse (more on gifting money later), or donating to a charity.
Self-Assessment Tax Returns
There are several reasons why an individual might need to fill out a self-assessment tax return, including having a self-employment income of more than £1000, after deducting anything you can claim through tax relief, earning more than £2500 in untaxed income, such as through tips, or your income from savings or investments exceeded £10,000.
For more information, ask the advice of an accountant to see if you need to fill out a self-assessment tax return. You can find concise and accessible tax guides at Suretax which will give you a deeper understanding of whether you need to fill out a self-assessment tax return, and how to go about it. When in doubt, reach out and ask a chartered accountant, it’s what they’re there for!
Some basic advice for filling out a self-assessment tax return is not to miss the deadline, as you will receive a penalty, keep a thorough record of your income and expenditure, declare any charitable donations you have made in the tax year, and keep a record of payments to a private pension fund.
First of all, if you are the parent or guardian of a child under sixteen years old, you may be eligible for child benefits. As of April 2022, child benefits will be increasing to £21.80 a week, and £14.45 for each additional child. Even if you are not working, or someone in your household earns up to £50,000, you are eligible for child benefits. In June 2021 alone, over 307,000 families benefited from tax-free childcare.
If your child is 11 or younger, and you earn at least minimum wage, you can access tax-free childcare. You can get up to £500 every three months (£1000 if your child is disabled) through this scheme. Your care provider will need to be on the Government’s list of approved services, and for every £8 you pay them, the Government pays £2 into your account, essentially eliminating the basic rate of income tax on the sum.
If you are receiving a money gift from a parent, spouse, or another individual, but don’t want to be subject to gift or inheritance tax, read on: when there’s a will there’s a way!
Everyone in the UK has an annual allowance of £3000 that can be gifted tax-free, as well as additional small gifts of up to £250, for birthdays or Christmas, for instance, that are also tax-exempt. However, bear in mind that you cannot gift these small amounts of £250 to the same beneficiary of all or part of your £3000 annual allowance, or it will be subject to taxation.
If you are gifting money as a wedding present and you are the parent, you can gift up to £5000 tax-free, if you are the grandparent you can gift up to £2500, and anyone else can gift up to £1000 exempt of tax.
If you give monetary gifts more than seven years before you die, it is exempt from inheritance tax.
Finally, there are certain groups known as exempt beneficiaries in the UK that you can gift unlimited money to without paying taxes. These include your spouse or civil partner, as long as they reside permanently in the UK, registered UK charities, and some national organizations, such as museums or universities.
Personal Tax Planning Made Easier
Hopefully, some of your misgivings about your personal tax planning have been eased. Now you know what you can earn before tax, how to handle self-assessment tax returns, if they are applicable to you, how to get tax-free child care, and how to avoid paying unnecessary taxes on money gifts.
These simple tips will set you on the right path to efficient and effective personal tax planning. Beyond this basic guide, it is recommended that you discuss your best options with an accountant, who can better direct you to the most cost-effective personal tax plan for you.