Your First Self Assessment / Lesson 2 of 7
The allowances that may cover you
Four separate £-allowances, doing four different jobs. Most people know about one.
The short answer
- ✓ Trading, property, savings and dividend allowances are separate and can all apply
- ✓ The personal savings allowance halves at higher rate and disappears at additional rate
- ✓ The dividend allowance is small and easily exceeded outside an ISA
- ✓ ISA income is invisible for tax and never goes on a return
Four allowances, four income types
These sit on top of your personal allowance and each covers a different kind of income. They do not compete and you can use all four in the same year.
| Allowance | Covers | Amount |
|---|---|---|
| Trading allowance | Self-employment and casual income | £1,000 |
| Property allowance | Rental income | £1,000 |
| Personal savings allowance | Interest | £1,000 basic rate, £500 higher rate |
| Dividend allowance | Dividends | £500 |
The savings allowance shrinks as you earn more
Basic rate taxpayer £1,000
Higher rate taxpayer £500
Additional rate taxpayer nil
So a pay rise that tips you into higher rate halves this
allowance at the same time. Two effects, one event.There is also a starting rate band of £5,000 for savings, which helps people with low earned income and significant interest. It tapers away as your other income rises, so most employees never see it.
The dividend allowance is small
At £500 it is easily exceeded by a modest holding of shares or funds outside an ISA. Above it, dividends are taxed at 10.75% for basic rate taxpayers, 35.75% for higher rate and 39.35% for additional rate.
The bit HMRC does not spell out
Nothing inside an ISA counts towards any of this. Interest and dividends earned in an ISA are invisible for tax: they do not use your savings or dividend allowance, and they do not appear on a return at all.
That makes the ISA the simplest tax planning available to an ordinary saver. Moving savings and investments inside the wrapper can remove a filing obligation entirely, not merely reduce the tax.
Common mistakes
- Thinking one allowance covers everything. They are separate and income-specific.
- Testing the trading allowance against profit. It is on income before expenses.
- Forgetting the savings allowance halves at higher rate. A pay rise has two effects.
- Declaring ISA income. It does not belong on a return.
Try it on your own numbers
This is the same calculator as the full tool page, using 2026/27 rates.
Your income
Salary, pension, self-employment, rental - before tax.
Tax-free interest
- Personal Savings Allowance
- Starting rate for savings left
- Taxable interest
- Estimated tax on interest
Estimate using marginal rate. Where savings income straddles two tax bands the exact figure can differ slightly. Scotland uses rUK rates for savings income.
Key takeaways
- ✓ Trading, property, savings and dividend allowances are separate and can all apply
- ✓ The personal savings allowance halves at higher rate and disappears at additional rate
- ✓ The dividend allowance is small and easily exceeded outside an ISA
- ✓ ISA income is invisible for tax and never goes on a return
Check you have got it
3 quick questions. No score is kept, and you can change your mind.
1. A pay rise moves you into the higher rate band. What happens to your personal savings allowance?
2. Do dividends earned inside an ISA use your dividend allowance?
3. Can you use the trading allowance and the property allowance in the same year?
Sources
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