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What a Relief (Tax relief, I’m afraid)

Author: Johan Da Silva

Tags: Tax, Tax Allowances, Tax Reliefs

Tax reliefs are government initiatives for individuals and businesses to reduce the amount of tax paid based on different scenarios. We thought it would be helpful to do a quick run through on the most common types:

  1. Research & Development for SMEs – To qualify, the business must have less than 500 employees and a turnover of less than £86million. It can be deducted an extra 130% of their qualifying costs from their yearly profit, as well as the normal 100% deduction, to make a total 230% deduction. If the business incurs a trading loss in the period in which R&D tax relief has been claimed, it can surrender all or part of that loss for a tax credit of 14.5% – vital cash for a business.
  2. Work from Home Tax allowance– If your employer requires you to work from home, it has always been possible to claim for increased costs, but during the first lockdowns, the government launched a speedy way to access this tax relief (link). It’s possible to claim £6 per week, totalling £312, and it’s possible to claim two years’ allowance in the same request, even if you worked from home for one day in the tax year 2020/2021 or the current one of 2021/2022. You can claim up to £140 per year if you are a tax payer in the rate of 45%.
  3. Inheritance Tax (IHT)– Is a tax paid by the estate of a deceased person and is based on the value of the estate plus recent lifetime gifts. Where a married person dies and leaves their estate to their spouse, no IHT is payable, the surviving spouse may inherit the tax-free allowance from their deceased partner, effectively doubling the allowance which they may pass on to £1 million.
  4. Gift Aid Payments – Ideally, the person in the family with the highest marginal tax rate should be making the Gift Aid payments. Gift Aid payment is disclosed on the tax return and grossed-up donation is a reduction in taxable income and reduces higher rate tax liabilities.
  5. Income Tax allowance– The First £2000 of dividend income is tax-free. The first £1000 of interest income for basic rate taxpayers and the first £500 for higher rate taxpayers is tax-free.
  6. Rent a room relief (applied from Income Tax)– Rent received from a lodger is free from income tax if below £7,500. If the rent is shared, the limit is halved to £3,750 each.
  7. Marriage allowance (also applied from Income Tax)– It is income tax relief for married couples and civil partners and allows the lower earner to transfer 10% of their personal allowance to their partner. Applies only when one person earns less than their personal allowance and the other’s earnings fall within the Basic Rate band.
  8. Property allowance (also applied from Income Tax)– The first £1,000 of gross property income is exempt from income tax, ideal for occasional property income.

Contact your local AIMS accountant for more information on how to claim those tax reliefs and how they relate to your specific circumstances.