Thursday 28th March 2019

Tax year end - make the most of your allowances

Article By Dave Morman

Now that we are well into March, spring must be just around the corner. It also means that the 5th April – the end of the current tax year – is rapidly approaching and you should make the most of your tax allowances, starting with your Individual Savings Account (ISA).

ISAs

ISAs are tax-free savings accounts open to anyone over the age of 16. Introduced 20 years ago, they still remain popular as there is no income tax or capital gains tax payable on ISA proceeds, making them the most tax efficient savings vehicle in the medium to long term. With attractive savings allowances, ISAs are very useful for individuals intent on building a nest egg for their future.

As at the end of the 2018/2019 tax year, the maximum amount you can deposit in an ISA in one financial year is £20,000 per annum.

This limit will remain unchanged into the 2019/2020 tax year. However, any tax savings are dependent on the amount you deposit into your ISA over the course of the relevant tax year. Deposits cannot roll over from one tax year’s allowance to the next, meaning that you can’t ‘top up’ your savings in 2019/2020 using any unused portion of the current tax year’s allowance. When it’s gone, it’s gone!

Maximising your ISA allowance is therefore a great way to save for your future. This is further highlighted by the fact that ISA allowances can be split across different financial products, including Cash ISAs, Stocks and Shares ISAs, Innovative Finance ISAs and Lifetime ISAs (LISAs).

Making use of an ISA allowance is typically one of the features of sound financial planning. You’ll find more information on ISAs here .

ISAs are just one of many tax allowance opportunities open to you. Others include:

Pensions

You can contribute up to £40,000 per year (including employer contributions) and still receive tax relief (your earnings must at least match your gross contribution for you to receive tax relief on your full contribution). However, the amount you can contribute tax-efficiently is restricted for anyone with income (including employer pension contributions) over £150,000 and it could be as low as £10,000 per year.

The perks are essentially equivalent to getting an instant 25 per cent interest on your contribution if you're a basic-rate or non-taxpayer. Every £800 that you put in is boosted to £1,000 via a tax rebate collected on your behalf by the pension provider. Higher-rate taxpayers get up to 40 per cent tax relief, meaning every £1,000 of higher rate income that goes into the pension costs just £600 — that's equivalent to a 66 per cent boost.

You can also take advantage of unused contributions from previous years, dating back 3 tax years, to really give your retirement planning a boost, if eligible.

If you have a spouse who does not work, or children under 18 with no earnings, you can invest up to £3,600 per annum into a pension for each of them (more if they have earnings above this level).

Gifting for Inheritance Tax purposes

You can give away gifts worth up to £3,000 in each tax year and these gifts are immediately outside of your estate and will be exempt from Inheritance Tax when you die.

You can carry forward any unused part of the £3,000 exemption to the following year, but if you don’t use it in that year, the carried-over exemption expires. You must fully use the current year exemption to be able to do this.

Certain gifts don’t use up this annual exemption, however and there is no Inheritance Tax due on them. For example, wedding gifts of up to £5,000 for a child, £2,500 for a grandchild (or great grandchild) and £1,000 to anyone else. Individual gifts worth up to £250 are also free of Inheritance Tax.

These are relatively small amounts, but you should use these up where possible to reduce your overall estate over time.

Capital Gains Tax

Every individual is entitled to a Capital Gains Tax (CGT) annual exemption and this is currently £11,700 for 2018/19. This is the amount of profit you can make from an asset this tax year before any tax is payable.

If you have not yet taken advantage of your tax-saving opportunities during this current tax year, please contact your Brunsdon Financial Adviser now for further information, help and advice.

Please note that this information is for guidance only and does not constitute personal advice. Any information provided in this article regarding tax treatment or legislation is based on our understanding of current UK legislation law, tax law and HM Revenue and Customs’ practice (March 2019), all of which may be subject to change and your individual circumstances may impact on these. The FCA does not regulate tax advice. Brunsdon is not responsible for the content of third party web sites.