Utilising allowances and lower rate bands

Produced by Tolley
  • (Updated for Budget 2021)

The following Personal Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Utilising allowances and lower rate bands
  • Why this is important
  • Personal allowance
  • Transferable allowances
  • Savings nil rate band and starting rate for savings
  • Dividend nil rate band
  • Basic rate and higher rate bands
  • Consider the family
  • Create employment
  • Dividend sharing
  • More...

Utilising allowances and lower rate bands

Taxpayers may wish to consider basic tax planning arrangements in order to reduce the overall income tax burden across a family by ensuring allowances and lower rate tax bands are used. This type of tax planning is often considered at the end of the tax year in preparation for the next year.

This guidance note first examines the various income tax allowances and lower rate bands that should be considered and then various strategies that might be appropriate, depending on the family circumstances. It also looks at the relevant anti-avoidance provisions and actions to consider before the end of the tax year.

For other commentary that is relevant to year end tax planning, see the:

  1. Tax efficient investments and Deferral of capital gains via reinvestment guidance notes, which consider investments that provide the taxpayer with relief from one or more taxes for the current tax year, or are exempt from income tax and / or capital gains tax

  2. Utilising the capital gains tax annual exemption guidance note, which considers how the capital gains tax annual exemptions within the family might be best used

  3. Timing of disposal for capital gains tax and 'Bed and breakfasting' with shares guidance notes, which consider the date of disposal of assets and the potential to delay the tax payment, and whether it is possible to dispose and reacquire an asset without triggering anti-avoidance rules

Why this is important

Personal allowance

In general, the personal allowance cannot be transferred to another person or carried into another tax year, although in limited circumstances all or part of certain allowances can be transferred to a spouse or civil partner, see below.

If the individual does not have enough taxable income to set against the allowance for the tax year, the benefit of that allowance is lost for that year. See the Personal allowance guidance note.

The personal allowance is also lost or reduced for the tax year in the following circumstances:

  1. where the

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