There is precious time left before tax year end on April 5th. Don’t leave your tax planning to the last minute; there are valuable allowances to use before it’s too late. And, you can plan properly for the future. Here are our six top tips:
1. Maximise your ISA
The most you can pay into an Individual Savings Account (ISA) is currently £20,000 a year. That can be paid into either a Cash ISA, a Stocks and Shares ISA or a combination of the two. Next tax year the limit is due to remain the same, but, if you don’t use it you lose it!
Free of Capital Gains and Income Tax, your full ISA allowance should be used as a priority each year as it’s one of the most tax-efficient ways to save.
2. Save for your children
If you have children or grandchildren, the Junior Individual Savings Account (JISA) is worthy of consideration. Contributions are limited to £4,260 per tax year, but it has the same tax benefits as an adult ISA.
You can pay into a JISA on behalf of your child up to age 18, but your child can take control of the account at 16. No withdrawals are allowed before 18, however. Again, if you don’t use the full JISA allowance in the tax year, the remainder does not roll over and will be lost. The better JISA providers will allow multiple contributors, so it’s a great way for grandparents to help out.
3. Top up your pension
There are limits to the amount you can tax-efficiently pay into your pension. Known as the Annual Allowance, it’s currently set at the equivalent of your relevant taxable income that year, up to a maximum of £40,000. However, for high earners, the Annual Allowance may be as low as £10,000. If you’re unsure if you’re making the most of your available allowance, please contact us.
There is one saving grace known as Carry Forward, where your unused Annual Allowance can be rolled over from the previous three years. If you think you might qualify for Carry Forward and have the means to maximise your pension contribution, don’t hesitate to get in touch. A pension scheme, especially since legislation changed in 2015 making them much more flexible from age 55 onwards, is an excellent way to plan for retirement.
4. Take dividends
The Dividend Allowance lets investors and shareholders receive £2,000 of dividends free of Income Tax. Originally introduced in 2016, the limit has been reduced from £5,000 to its current level, so it would be wise to make use of the allowance whilst it is available. Tax on dividends over the Dividend Allowance is;
- 7.5% for basic rate Income Tax-payers
- 32.5% for higher rate tax-payers
- 38.1% for additional rate
If you have the opportunity to take dividend income, from either a business you are involved in or your investment portfolio, this modest allowance can help you create a tax-efficient income.
5. Utilise your Capital Gains Tax allowance
The Annual Exempt Amount (AEA), where you don’t have to pay Capital Gains Tax on the sale profits from qualifying assets, is £11,700. If your overall profit, or gain, is above this amount in a tax year, CGT will be due.
The good news is that next year the exempt amount is rising to £12,000. A further consideration; jointly owned assets can use both of your allowances should you sell and make a gain, but the exemption does not roll over from year to year. So, if you’re planning to sell a valuable qualifying asset and have already used the majority of your AEA, it might be worth delaying the sale until after April 6th.
6. Make gifts
If you’re trying to reduce or remove a potential Inheritance Tax (IHT) bill, making gifts to loved ones is one of the simplest methods. IHT at 40% is due on part of your estate when you die, if it’s over a particular value, currently up to a maximum of £900,000 for a married or civil partnership couple. That’s £450,000 per person, including both the Nil-Rate Band and Residence Nil-Rate Band. If you want more information on your potential CGT liability, please get in touch.
By making gifts during your lifetime you can effectively reduce the value of your estate. The annual gift allowance lets you give up to £3,000 immediately free of IHT. Unused allowance carries over just one year.
There is also a ‘seven-year rule’, meaning gifts of any value are exempt from IHT if you live for at least seven years after making it. If you’d like to discuss the potential Inheritance Tax liable on your estate and the many ways you are able reduce it, we have vast experience in this area.
What next?
There is valuable time left to make use of some valuable tax allowances. Some currently roll over, others don’t. If you can, it’s advisable to make use of every allowance you’re presented with whilst its available.
On April 6th, during the 2019/20 tax year, some personal allowances are changing. If you’d like to discuss what allowance you can utilise immediately or what opportunities the new limits offer in April, don’t hesitate to get in touch with one of our Chartered financial planners.