Tax Free allowances UK

Summary of Tax Free allowances in UK

It’s that time of the year again! Yes, I’m talking about filing your tax returns in India as well as the UK. For me, a few days back I finished filing my tax return in India. So that’s one half of the equation solved 🙂

Off-late I’ve been skimming through pages after pages of internet websites like gov.uk, moneysavingexpert.com, taxscouts.com, etc trying to gather information on all the tax-free allowances in the UK. After spending a good number of hours on this I made a handy list a.k.a. summary of tax free allowances for individuals in the UK.

If you are like me, then this summary will be particularly useful to you. Towards the end I’ve included a section on tax-free foreign income allowance if you have income from your domicile country (like India). In there, I have also covered difference between domiciled resident and non-domiciled resident in the UK. Hope you find it useful.

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The list is from highest to lowest tax-free allowances and the first one is….

Personal allowance — The standard personal allowance is £ 12,570 in one financial year. Your wages, pension and other income fall under this. Visit this gov.uk website for more details.

The next is,

Capital Gains tax-free allowance — £ 6000 for current tax year (2023–2024). Please note even though gains from property and other assets fall under this category, you pay more taxes on gains from property than other chargeable assets like shares, gold, crypto, etc. For more information visit — capital gains tax rates.

The next one is,

Dividend allowance — £ 1000 for current tax year (2023–2024). Please note dividend allowance, like capital gains allowance, has reduced from last year. Here are historic dividend allowances. Also note, you do not pay tax on dividends from shares in an ISA.

And the next is,

Personal Savings Allowance (PSA) — £ 500 or £ 1000 depending on if you are a basic rate tax payer or higher rate tax payer. Find out which one you are here — Income Tax rates and bands. This allowance applies to interest from bank accounts, savings account, government or company bonds, etc. A full list is available on the gov.uk page.

The popular one is,

ISA tax-free allowance — There are four different kinds of ISA. You can invest in an ISA account tax-free up to £ 20,000 annually. This is total across all types of ISAs. You can hold multiple ISA accounts but the maximum tax-free investment you can do is £ 20,000. All the gains including dividends are tax-free always. Particularly good for long-term investing as long term investing can generate significant returns which may surpass other tax-free allowances.

I’ve created this FAQs on ISA if you want to know more.

And finally,

Foreign Income tax-free allowance — £ 2000. You will not have to pay tax on gains/income in foreign country if the gains/income is under £ 2000. This tax-free allowance is only applicable to non-domiciled residents if and only if they do not bring the gains/income in to the UK.

Domiciled residents normally pay UK tax on all their income, whether it’s from the UK or abroad.

Non-residents only pay tax on their UK income — they do not pay UK tax on their foreign income.

You can work out if you are a non-domiciled resident or domiciled resident from this page — Work out your residence status.

And that’s a wrap! I hope this list serves as a quick reference for all your tax-free allowances in the UK. If you want me to cover a particular topic in detail dm me on Instagram at @umoneyminded