As the end of the tax year approaches (5 April), you will no doubt want to make the most of your individual allowances. Take a look at our handy reminders below that may help you to reduce this year’s tax liability.
ISAs
ISAs are tax-efficient savings open to anyone over the age of 16 who is resident in the UK (or is a Crown servant serving overseas or the spouse of such an individual who accompanies their spouse abroad).
For the tax year 2019/20, you are allowed to save up to £20,000 tax free. The money can be placed in Cash ISAs or Stocks and Shares ISAs. Alternatively, although not suitable for all investors, individuals over the age of 18 could choose an Innovative Finance ISA (which basically match up investors who are willing to lend with borrowers) or the new Lifetime ISAS (designed to help those aged 18-40 to buy their first home or save for retirement). Junior ISAs are also available whereby you can invest up to £4,368 on behalf of your child aged under 18 in the current tax year (provided they don’t hold a Child Trust Fund). Any money you put into a Junior ISA belongs to the child, but they cannot withdraw it until they turn 18, when the account is automatically converted into an adult ISA.
You can split your maximum £20,000 total investment between a number of different ISAs, although please note that there is a limit of £4,000 per year for the Lifetime ISA.
Maximising your ISA allowance is a good way to save for the future. Whatever combination of ISA you decide upon, you will need to invest by 5 April 2020 for them to be counted in this year’s tax calculations. Allowances cannot be rolled over year by year.
Pensions
The amount you save into your pension pot can benefit from tax relief, as long as that amount doesn’t exceed the annual allowance in any tax year. The annual allowance limit for the current tax year is £40,000. If your taxable earnings in the year are below the annual allowance, then you can receive tax relief on 100% of your earnings (up to the annual allowance), or £3,600 gross, whichever is higher.
You can carry forward up to three years’ unused contributions, which altogether could mean up to an additional maximum of £160,000 tax free towards your retirement. Any unused annual allowance for the tax year 2016 / 17 will be lost if you don’t use it by 5 April 2020.
The tax free allowance changes once your total taxable income exceeds £150,000 per annum. Once this threshold is met, the ‘tapered annual allowance’ means that your tax free amount decreases. For example, for the tax year 2019-20, if you earn £160,000 per annum, your tax free allowance is £35,000. If you are paid £210,000 per annum or above, the tax free allowance is only £10,000.
Gifting for Inheritance Tax purposes
You can give away gifts of up to £3,000 in each tax year and these will not be subject to Inheritance Tax when you die. If you give away more than this and you die within seven years, the gifts can later become subject to Inheritance Tax. You can carry forward any unused part of the £3,000 to the following year only. In effect, this means that if you have any unused amount from the 2018/19 tax year, you need to use it by 5 April 2020.
You may also make small gifts of £250 to any number of individuals each year without them being subject to Inheritance Tax as long as no other gifts are made to the same people in the same tax year.
We appreciate that these are relatively small amounts, but worth using up where possible to reduce your overall estate over time.
Capital Gains Tax
This tax relates to the amount of profit you can make from an asset before any tax is payable. The allowance for the current tax year is £12,000. Married couples are taxed individually for Capital Gains Tax, so it may be tax efficient to transfer an asset from one spouse to the other before realising a gain. Transfers of this type must be outright and unconditional.
Capital Gains Tax exemption cannot be carried forward from year to year, so be sure to use it before 5 April.
If you have not yet taken advantage of your tax-saving opportunities during the current tax year, please contact your Brunsdon Financial Adviser. They will also be able to advise you on strategies that could be put in place to minimise your tax liabilities in future years.
Source 1: https://listentotaxman.com/uk-tax/tax-guides/end-of-year-tax-planning-advice.html
Source 2: https://www.moneysavingexpert.com/savings/ISA-guide-savings-without-tax/
Source 3: https://www.which.co.uk/money/savings-and-isas/isas/lifetime-isas-ac6mf6s7r9d5
The value of investments can fall as well as rise. You may not get back what you invest.
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