Farmers can cut their tax bill by making the most of new personal allowance rules, accountants advise.
Tax changes in force from this year will let couples share some of their unused allowances, possibly cutting their joint bill.
But they will also have to plan carefully for tweaks to the way interest from savings is taxed.
Julia Banwell, chartered financial planner at accountant Old Mill, explained how couples and savers can make the most of new rules:
Sharing tax-free allowances
- Couples who are married or in a civil partnership can transfer up to 10% of their tax-free allowance between them, from the 2015-16 tax return onwards.
- For example, if one partner earns less than the £10,600 threshold, while the other pays tax on a higher income, they can switch over some of the unused allowance, as long as the second partner earns between £11,001 and £43,000. This could lead to a saving of up to £212 for the couple.
- To apply for the transfer, couples must fill in a form on the HMRC’s website.
Save on savings tax
- The new personal savings allowance will also change the way farmers pay tax on interest, which might save money but could lead to an unexpected tax bill.
- Basic-rate (20%) taxpayers can now earn up to £1,000 in interest on savings before paying tax on that income. Higher-rate (40%) taxpayers can earn up to £500 tax-free. This is on top of any ISAs.
- From 6 April 2016, any interest received will be paid gross, with no basic rate tax taken off. Then, any savings income more than the £500 or £1,000 limits will have to be declared on the self-assessment tax return.
- So, tax on savings income will become part of payments due for the 2016-17 tax year onwards, with the first due in January 2018. This means the tax bill may be higher than initially thought.
- Farmers should budget to make sure they have enough money for when those first payments are due.