The main tax allowances and thresholds in the UK have been significantly reduced over the last decade.
Quilter’s research looked at the nine main allowances available to individuals which have, on average, been cut by 11%.
Personal allowance on income increased by 93% in the last 10 years – to £12,500 ($17,302, € 14,525) from £6,475.
Pension allowances experienced huge cuts, while the inheritance tax (IHT) nil rate band threshold and exemption have been frozen for over a decade.
The pensions annual allowance was slashed by 84% compared to the 2010-11 financial year – from £255,000 to £40,000; and, similarly, the equivalent lifetime allowance dropped by 40% – from £1.8m to £1.07m.
Both dividend allowance and money purchase annual allowance were also cut by 60% since they were introduced – from £5,000 and £10,000 respectively.
The IHT nil rate band has remained the same since 2009 but will grow with inflation from April 2021.
As a result, Quilter is urging people to take advantage of the current thresholds and allowances, as they may incur in further cuts down the line.
| Tax allowance/threshold | Level in 2010/11 tax year | Level in 2020/21 tax year | Percentage increase/decrease |
| Personal allowance | £6,475 | £12,500 | +93% |
| Dividend allowance | £5,000 (1) | £2,000 | -60% |
| Lifetime allowance | £1,800,000 | £1,073,100 | -40% |
| Annual Allowance | £255,000 | £40,000 | -84% |
| Money Purchase Annual Allowance | £10,000 | £4,000 | -60% |
| Individual Capital Gains Tax threshold | £10,100 | £12,300 | +22% |
| Inheritance tax nil rate band threshold | £325,000 | £325,000 | 0% |
| Inheritance tax annual exemption | £3,000 | £3,000 | 0% |
| Married Couple’s allowance | £6,965 | £9,075 | +30% |
| Average | -11% |
Source: Quilter
Will they ‘only get worse from here’?
Rachael Griffin, tax and financial planning expert at Quilter, said: “The various tax allowances and thresholds are great ways to incentivise people to save for their future, distribute their wealth and help establish a strong financial future.
“However, many of these have taken huge hits in recent years as subsequent governments look to claw back as much tax as possible.
“One could argue that these allowances and thresholds are never going to be as good again and will only get worse from here. The chancellor recently outlined plans to freeze many of these tax allowances in order to start balancing the books to help pay for the pandemic response.
“As such, this is one of the most important ends to a tax year we can remember. It will be vital for individuals to utilise their tax allowances as much as they can now before they reset in April, and take advantage of the situation today, rather than wait and think it will be the same one or two months from now.
“It is also worth remembering that many of these allowances have failed to keep up with inflation.
“Expectations are that inflation is going to rise as the economy reopens, so this will effectively decrease the levels in real terms over time. Putting money into a pension or gifting it to a family member now could make a real difference compared to waiting for the next tax year.”
