As the 2024/25 tax year approaches, understanding tax allowances and reliefs becomes essential for personal financial planning and business decisions. Tax allowances and reliefs help reduce your taxable income, meaning more of your earnings stay in your pocket. Whether you are an individual taxpayer, property investor, or business owner, these allowances can shape the way you approach investments, property deals, and even selling assets. Let us dive deeper into the main types of tax allowances, providing practical examples along the way to help you make the most of these opportunities.
Tax allowances are portions of your income or gains that are exempt from tax. These allowances can vary depending on your income level, business activities, or the types of assets you own. Reliefs, on the other hand, reduce the amount of tax you owe based on specific activities like business incorporation, property sales, or investment in certain assets.
For the 2024/25 tax year, several key tax allowances remain in place, such as the Personal Allowance and the Capital Gains Tax Exemption, but there are also additional reliefs tailored for property buyers, investors, and businesses. By understanding these allowances, you can strategically plan to minimise your tax liabilities.
Personal Tax Allowance 2024/25
The Personal Allowance is the amount of income you can earn before you start paying income tax. For the 2024/25 tax year, the Personal Allowance remains at £12,570, unchanged from the previous tax year. It applies to all taxpayers in UK unless their earnings exceed £100,000, at which point the allowance starts tapering off.
For Example,
If you earn £25,000 a year, the first £12,570 is entirely tax-free. You will only pay income tax on the remaining £12,430.
Tapering of Personal Allowance:
- For individuals earning above £100,000, the Personal Allowance is reduced by £1 for every £2 over that threshold.
- This means for incomes exceeding £125,140, no Personal Allowance is available.
Capital Gains Tax (CGT) Allowances
Capital Gains Tax is charged on the profits made when selling an asset that has increased in value, such as property (not your main home), stocks, or other valuable assets. For the 2024/25 tax year, the Annual Exempt Amount (AEA) for CGT is £3,000 for individuals and £1,500 for trusts. This represents a significant reduction of 50% compared to the previous year’s allowances, which were £6,000 for individuals and £3,000 for trusts.
However, here is something you will be glad to know, if you are married or in a civil partnership, there is no CGT on assets gifted between spouses or civil partners, meaning they can transfer assets freely between each other without incurring a CGT liability, which can be useful for tax planning.
Private Residence Relief (PRR)
If you sell your main home, any capital gain you make is generally exempt from CGT. This relief can be extremely beneficial when selling a home you have lived in as your primary residence.
But if you have used any part of your home just for business, you have to pay Capital Gains Tax on that part when you sell your home.
To explore this further and see how it might apply to you, read our article "Private Residence Relief- A Complete Guide".
Incorporation Relief
If you transfer your business to a limited company, incorporation relief defers CGT on the transfer of assets, rolling the gain into shares received from the company. This is particularly useful for those looking to incorporate their property business or other trades.
Business Assets Disposal Relief
If you sell all or part of your business, you may be eligible to pay a reduced Capital Gains Tax rate of 10% on the qualifying profits, rather than the standard rates. This relief is available up to a lifetime limit of £1 million and can significantly lower your tax bill. However, it is important to note that this relief is only applicable if your business is trading in nature, not if it is an investment or holding company.
Business Assets Rollover relief
You can defer paying Capital Gains Tax when you sell or dispose of certain types of assets if you replace them. In such cases, if you purchase a similar type of asset to the one you sold, any gain from the disposal of the old asset can be deducted from the cost of the new asset. This effectively reduces the taxable gain and postpones the tax liability until the new asset is sold.
Stamp Duty Land Tax (SDLT) Reliefs
Stamp Duty Land Tax (SDLT) is a tax that you must pay when you buy a property in the UK.
There is some good news, depending on the property type and your buying circumstances, you may be eligible for various SDLT reliefs, potentially reducing the tax burden on property transactions.
Note: When a company acquires residential property, an additional Stamp Duty Land Tax (SDLT) surcharge of 5% applies on top of the standard SDLT rates.
For Example,
Property Price: £400,000
- 5% on the first £250,000 = £12,500
- 10% on £150,000 (the amount between £250,001 and £400,000) = £15,000
Total SDLT Including Surcharge = £27,500
First-Time Buyer Relief
While purchasing a residential property for the first time, no SDLT tax is payable for the first £425,000 of the property value.
You can claim relief if both the following conditions are met:
- you intend to occupy the acquired property as your main residence
- the purchase price is not more than £625,000
For Example,
Imagine you are purchasing your first home for £400,000. With first-time buyer relief, you would not pay any SDLT on the first £425,000, meaning your entire purchase is exempt from SDLT.
Multiple Dwellings Relief (MDR)
If you are purchasing more than one property, MDR allows you to reduce the SDLT liability by calculating SDLT based on the average property price instead of the total.
Although, MDR has been abolished for transactions with an effective date on or after 1 June 2024. MDR remains available for contracts exchanged on or before 6 March 2024, regardless of the completion date, unless the transaction is excluded. Excluded transactions include variations or assignments made after 6 March 2024. Purchasers must include the date of exchange and date of completion on their return to claim MDR. If the contract is varied or assigned after 6 March 2024, the transaction must complete before 1 June 2024 to remain eligible for MDR.
Transferring Your Property from a Partnership to a Limited Company
If you are transferring, you whole business from a partnership to a limited liability company in exchange for shares; this shall be transaction between connected persons for Stamp Duty Land tax purposes. Hence, you might be able to get stamp duty land tax relief.
Building Company Buys an Individual’s Home
When a building company or trader purchases a property from an individual who is also purchasing a property from them, the property thus purchased by the company and trader is exempt from Stamp Duty Land tax (provided conditions are met).
Rent-a-Room Relief
If you rent out a furnished room in your main residence, the Rent-a-Room Scheme allows you to earn up to £7,500 per year tax-free. This is an attractive relief for homeowners who want to generate extra income without the burden of additional taxes. If the property is co-owned, the relief is split between both owners, with each entitled to £3,750 tax-free.
Property Income Allowance
For individuals with small property incomes (e.g., holiday lets or occasional rental income), the Property Income Allowance provides a tax-free threshold of £1,000. If your property income is less than this, you don’t need to declare it to HMRC. However, if it exceeds this threshold, you can either:
- Deduct the £1,000 allowance from your rental income, or
- Deduct actual expenses.
This relief is especially helpful for those with casual or occasional rental income.
Business Reliefs for Property Businesses
If you run a property business through a company, you will want to explore corporate tax reliefs and allowances that can minimise your tax liabilities.
Annual Investment Allowance (AIA)
The AIA allows businesses to deduct the full cost of qualifying plant and machinery from profits before tax, up to a limit of £1 million per year. This is a significant allowance for property businesses that need to invest in equipment or infrastructure improvements.
Structures and Buildings Allowance (SBA)
The SBA allows property businesses to claim tax relief on the costs of constructing or renovating commercial buildings at a rate of 3% per year over 33 years 4 month. This is particularly relevant for commercial property developers or landlords.
Inheritance Tax (IHT)Allowance
Property owners need to be aware of Inheritance Tax (IHT), particularly if their estate is valued above the £325,000 threshold.
For the 2024/25 tax year, the Nil-Rate Band (NRB) allows up to £325,000 of an estate to be tax-free and the Residence Nil Rate Band (RNRB) offers an additional £175,000 of tax-free allowance if your home is passed on to direct descendants. This means you could potentially leave an estate worth up to £500,000 without paying IHT.
Also, transfers of assets between spouses or civil partners are generally exempt from inheritance tax, regardless of the amount
For Example,
If your estate includes a home worth £450,000, passing it on to your children could benefit from both the basic £325,000 IHT threshold and the £175,000 RNRB, meaning the entire estate could be passed on without any IHT liability.
Conclusion
The 2024/25 tax year offers many opportunities to reduce your tax liabilities through allowances and reliefs. Whether you are a first-time homebuyer, property investor, or running a business, strategic planning is essential to maximise the benefits. By understanding the various tax allowances—from Personal Allowance to Capital Gains Tax Exemptions and Stamp Duty Reliefs—you can reduce your tax burden and keep more of your hard-earned money.
Staying proactive and knowledgeable about these tax incentives will not only reduce your tax liabilities but also support your broader financial goals, ensuring you make the most of the opportunities available.
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