Tax tip: Avoiding abatement of personal allowances

Personal allowances (PAs) are restricted where total income exceeds £100 000. There is a full clawback where total income exceeds £125 140. Interest and dividends are counted even if the income falls within the savings or dividend allowances. Income between £100 000 and £125 140 can suffer tax at an effective rate of 60%. Strategies to bring income down to £100 000 follow.

Shifting income to a spouse or partner by transferring assets or by putting assets into joint names. For unmarried couples capital gains tax needs to be considered as transfers of chargeable assets will take place at market value (gift relief can defer gains on shares in family trading companies or furnished holiday lets). Ensure that the asset itself is transferred (not just the right to income) as shifting income only might be attacked under the ‘settlements’ rules.

Exchange a bonus for additional employer pension contributions (salary...