66 Saturday May 28 2022 | the times
Money
out paying any tax. This might include
selling shares, a second property (your
main home is exempt) or valuable art or
jewellery. If you do not use your capital
gains tax (CGT) annual exemption, it is
lost and cannot be carried forward. If
you think you will exceed your annual
exemption, consider waiting until a
new tax year before selling more assets.
Where you own an asset with
another person, such as in a marriage or
civil partnership, you can apply both
allowances. This means where a gain is
made on the sale of a second home for
example, you can make up to £24,600
before CGT becomes applicable.
Remember that inter-spouse trans-
fers are free from CGT, so where one
spouse or civil partner has not fully util-
ised their annual exemption, consider
giving some assets to your spouse to
maximise tax relief.0 Trading allowance: £1,000
This allowance applies to any income
you have from what might be described
as a side-hustle, otherwise known as a
second job. It could be babysitting, sell-
ing crafts on Etsy or lending personal
equipment, such as garden power tools.
If your total trading income for the
tax year is £1,000 or less then the whole
of this income can be covered by the
trading allowance.
Shah said: “If you sell a bunch of
widgets on eBay and make £1,000, you
can pocket every penny. There’s no
need to declare it. It’s a simple way to
earn a bit extra without paying tax.”
But remember you cannot claim tax
relief for business expenses when you
claim the trading allowance. If you have
expenses greater than £1,000 you will
be better off if you deduct your expens-
es from your trading income rather
than using the trading allowance as you
will pay less tax on your profits.How to earn £42,000 and
pay absolutely no tax at all
I
t is possible to bank up to £42,370
completely tax-free every year by
making the most of the tax perks
on offer.
“HMRC make it complicated to
understand some of the tax breaks, but
once you know about them and use
them, you’re in a good position,” said
Nimesh Shah, of the accountancy firmBlick Rothenberg. “It’s worth getting to
grips with these because it could enable
people to keep more of their money.”
We have rounded up the reliefs and
exemptions to know about, from the
well known to some hidden gems.0 Personal allowance: £12,570
The first £12,570 of earnings is notsubject to any income tax. This is a
valuable tax break. If your spouse or
civil partner does not have sufficient in-
come to fully utilise their personal al-
lowance, you could transfer income-
generating assets to them so that the
future income is either tax-free in their
hands or charged at a lower rate.
The allowance is applied automati-
cally (unless you’re on an emergency
tax code). It’s worth noting that from
July 6 the threshold for paying National
Insurance will increase from £9,568 to
be aligned with the personal allowance
at £12,570.0 Starting rate on savings: £5,000
You can also get up to £5,000 of interest
on savings and not pay tax, but only if
you earn under £17,570 a year.
If you earn the £12,570 personal al-
lowance or less you are entitled to the
full £5,000 relief, but for every £1 over
that the starting rate reduces by £1.
For example if you have an annual in-
come of £15,000 your starting rate will
be reduced by £2,430. That means you
could earn up to £2,570 in interest tax
free.
The best interest rate on easy access
savings is currently 1.5 per cent with
Chase. At that rate you would need to
hold more than £333,333 to exceed the
starting rate.
Julia Rosenbloom, of Smith & Willi-
amson, a financial services firm, said:
“This little-known tax allowance is
likely to mostly be used by someone
who is retired, or someone who chooses
not to work. If that person has a large
amount in savings they are able to use
this allowance.”0 Personal savings allowance: £1,000
(basic-rate taxpayers)
If you don’t qualify for the starting rate
you still get a tax break called the per-
sonal savings allowance, unless you’re a
top-rate tax payer.
Introduced in 2016, it allows you to
earn up to £1,000 of interest tax-free if
you are a basic rate tax payer earning up
to £50,270. Any interest earned above
that is taxed at 20 per cent.
For higher-rate tax payers, those who
earn more than £50,270, the allowance
is reduced to £500 a year. Interest above
that is taxed at 40 per cent.
Additional-rate taxpayers who earn
over £150,000 a year do not benefit
from the personal savings allowance.
While rising interest rates mean you
will hit your personal savings allowance
earlier, basic rate taxpayers could still
hold £66,666 in a bank account paying
1.5 per cent a year before tax starts to be-
come an issue. Higher rate taxpayers
could hold up to £33,333.0 Dividend allowance: £2,000
Dividends paid from investments held
outside an Isa are subject to a special
rate of dividend tax, though the first
£2,000 is tax free.
If you’re in a couple there’s the option
to transfer some shares to your other
half so they can use the allowance too.
After the allowance is used up, you pay
8.75 per cent if you are a basic-rate tax-
payer, 33.75 per cent for higher-rate and
39.35 per cent for additional rate.
You can save up to £20,000 a year in
an Isa tax free and dividends paid on
those investments are tax free too, so it
makes sense to use this allowance first.0 Capital gains annual exemption:
£12,300
You can receive up to £12,300 profit
each year from the sale of assets with-If you fill in the right
forms you won’t pay
HMRC a penny more
than you have to, says
Holly Thomas