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Where Taxpayers and Advisers Meet

Income tax personal allowance

Feds
Posts:59
Joined:Wed Aug 06, 2008 4:10 pm
Income tax personal allowance

Postby Feds » Wed Feb 03, 2021 9:19 pm

Can the income personal allowance be offset against whichever income an individual chooses?
So if it reduces the overall level of tax payable, could you decide to offset it against dividend income first, then savings or earned income?

As an example, if, in 20/21, an individual has salary of £10,500, £500 savings interest and £4,000 dividends.
If she offsets personal allowance against the salary first, then against the dividends, she avoids tax altogether as the additional £2,000 dividend and the £500 savings interest will be covered by their respective allowances.
If instead she offsets it first against her salary, then the savings, then the dividends, the last £500 of the dividend becomes taxable at 7,5%.

Have I got this right?

Thank you

robbob
Posts:3228
Joined:Wed Aug 06, 2008 4:01 pm

Re: Income tax personal allowance

Postby robbob » Thu Feb 04, 2021 9:15 am

Can the income personal allowance be offset against whichever income an individual chooses?
Yes - practicably speaking hmrc should always process the transactions in a manner that best suits you too - so normally you can rely on hmrc calcs ensuing they don't fleece you.
They do each year though have issues where they get their knickers in a twist and get their numbers wrong (they also force extrernal software providers to follow suit and duplicate the known wrong numbers :)) - these are know as the online filing exclusion cases. With these hmrc may/should go back through these at a later date and correct their mistakes - can't ever think that one of their "mistakes" has under taxed anyone ever though lol - so their genuine errors are randomly biased in their favour. the solution here is to file paper return and advise its online filing exclusion number 36 or whatever and some hmrc genius will do what the computer cant do.

https://kb.taxcalc.com/kb_upload/file/2019-2020-Spec-Indiv-v1_1.pdf
As an example, if, in 20/21, an individual has salary of £10,500, £500 savings interest and £4,000 dividends.
If she offsets personal allowance against the salary first, then against the dividends, she avoids tax altogether as the additional £2,000 dividend and the £500 savings interest will be covered by their respective allowances.
Yep thats absolutely fine and there will be no tax due

Feds
Posts:59
Joined:Wed Aug 06, 2008 4:10 pm

Re: Income tax personal allowance

Postby Feds » Fri Feb 05, 2021 1:19 pm

Thank you both for this. Much appreciated


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