Tax Talk: Allowances & Exemptions

Tax Talk is a regular series written by FSL’s tax expert, Alex Ranahan. Alex has nearly ten years’ experience as a tax adviser and analyst. He is accredited by The Association of Taxation Technicians and was recently elected co-chair of the Tax Committee for The Investing and Saving Alliance.  

Alex’s Tax Talks are on general topics and are not tax or financial advice. If you are unsure of the treatment of a transaction, we encourage you to seek the appropriate advice. 

Who is entitled to a personal allowance against their income? Is a French citizen with some UK gains entitled to claim the annual exempt amount for capital gains tax? 

Capital gains tax

Capital gains tax is pretty straightforward. All individuals, including non-residents, can use the capital gains tax annual exemption amount of £6,000 for 2023-24 or £3,000 for 2024-25.

The only exception is for individuals who are non-UK domiciled and claim the remittance basis. Currently, a non-dom is entitled to claim the remittance basis of tax for up to 15 years of UK residence out of the past 20 years. After 15 years, a non-dom acquires a ‘deemed domicile’ in the UK and is taxed on their foreign income and gains (FIG).  

This will soon change. In August, the government outlined its planned reforms to the taxation of non-dom individuals, saying it would end the “preferential” tax treatment of FIG based on the “outdated” concept of domicile.  

A new, residence-based regime will take effect from April 6, 2025. You can read more about the new regime on our blog.

Income tax

Income tax, meanwhile, has more conditions. 

A good primer is given by the Low Incomes Tax Reform Group, a charity under the wing of the Chartered Institute of Taxation. But, in short, you are eligible to claim the personal allowance if you are resident in the UK, the Isle of Man or the Channel Island, or if you are a national of the UK or a European Economic Area state. 

The other eligibility criteria is if the individual: 

• Previously lived in the UK but now lives abroad because of ill health or the ill health of a family member living with them. 
• Is or was a UK civil servant, or their late spouse or civil partner was a UK civil servant. 
• Works for a missionary society. 
• Works for the civil service of a British Overseas Territory or dependency. 

The amount of personal allowance you get is reduced by £1 for every £2 of income received in the year above £100,000. For 2023-24, this means that the personal allowance of £12,570 is fully reduced to zero if all your income in the year totals £125,140 or more. 

Savings and dividends

As for the savings allowance and dividend allowance, the income that falls within them is not exempt from tax. Instead, the income that falls within them is taxed at 0%. This may seem like a semantic difference, but the difference is all UK taxpayers get a savings allowance and dividend allowance!    

Like the CGT annual exempt amount, the dividend allowance is the same amount for all taxpayers: £1,000 for 2023-24 and £500 for 2024-25.  However, the amount of savings allowance you get starts at £1,000, is reduced to £500 if you have any higher rate income, and reduced again to zero if you have any additional rate income.