The tax year will be coming to an end on 5th April. With that cutoff date in mind, we wanted to remind our clients of some of the allowances available to you during the tax year. It’s important to make sure you’re making the most of your allowances in all areas so that you lessen the impact of tax. Listed below are a few allowances you should be thinking about:
1. Top-up your pension contributions
You should make sure you check your pension contributions at least once per tax year as they can be an excellent way to manage your tax liabilities. For the high earners among you, however, it’s important to keep the annual and lifetime pension allowances in mind. These allowances are currently set at £40,000 and £1,055,000 respectively. Remember that if you have a taxable income over £150,000 or you have flexibly accessed your pension, you could have your annual allowance restricted.
For those of you who aren’t nearing the limit, increasing your pension contributions can be an effective way to mitigate the impact of tax. If you haven’t managed to make full use of your £40,000 annual allowance, you can carry it forward for up to three years.
2. Use your ISA allowance
With a cash ISA or a stocks and shares ISA (or a mixture of the two), you can save or invest up to £20,000 each year per person, meaning that a couple can invest up to £40,000 between the two of them.
3. Boost your children’s savings
The Junior ISA limit is set at £4,368 for this tax year. Why not take the time to give your children’s savings a boost by making sure they’re at the limit? You may even want to contribute to your grown up children’s Lifetime ISA if they have one, and the government will provide a bonus of 25% of the money invested, up to £1,000 per year.
4. Utilise your dividend allowance
If you’re a company shareholder or you receive dividends through a collective investment scheme, you can currently receive £2,000 worth of dividends tax free.
5. Think about Inheritance Tax
The current tax-free threshold is set at £325,000 for single individuals and £650,000 for married couples. Anything above this limit will generally be taxed. Inheritance Tax (IHT) is where a little bit of careful planning can pay dividends in the future. This might be by making full use of your annual gift allowance of £3,000, re-writing your will or placing assets into trust.
A new IHT Residence Nil Rate Band (RNRB) was introduced in April 2017. It is on top of an individual’s own nil rate band of £325,000, and conditional on the main residence being passed down to direct descendants (e.g. children, grandchildren). It is being phased in over 4 years and the full £175,000 allowance will be available from April 2020. The RNRB will be transferable between spouses and civil partners on death, much like the standard nil rate band. It is the unused percentage of the RNRB from the estate of the first to die which can be claimed on the second death.
6. Maximise your Capital Gains Tax allowance
Capital Gains Tax is a tax on the profits you make when you sell something, such as a second home or a personal possession worth £6,000 or more, except for your car. The tax-free allowance for the 2019/20 tax year is £12,000 per person so couples can pay no tax on a total of £24,000 of gains. Remember that genuine gifts from a spouse or civil partner do not count towards the allowance.
For more information on how to make sure you’re maximising your tax allowances, do get in touch, we’d love to hear from you. You can call us on 01789 263888 or email firstname.lastname@example.org.
Investment carries risk. The value of your investment (and any income from it) can go down as well as up and you may not get back the full amount you invested. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.
The Financial Conduct Authority does not regulate tax advice.