As we venture into another New Year, it is important to make sure everything is in order before we reach the end of another tax year on April 5th. By making sure you have hit your allowances, you can save yourself a potentially heavy tax burden. Here are some of the allowances you should consider before the deadline:
With a cash ISA or a stocks and shares ISA (or a combination of the two), you can save or invest up to £20,000 each year per person, meaning that a married couple can invest up to £40,000 between the two of them. Your allowances can be split across different types of ISA. Also, it is worth remembering that you cannot carry over any unused allowance from one year to the next.
Top up your pension contributions
You should make sure to check your pension contributions at least once per tax year, as they can be a great way to manage your tax liabilities. However, for the high earners among you, it is important to keep the lifetime pension allowance in mind. The current lifetime allowance is set at £1,055,000. Remember that contributions causing your allowance to surpass the allowance are taxable.
For those of you, who are not nearing that limit, upping your pension contributions can be a great way to mitigate the impact of tax. If you have not managed to make full use of your £40,000 annual allowance, you can carry it forward for up to three years.
The current tax-free threshold is set at £325,000 for individuals and £650,000 for married couples. Anything over this amount will be taxed. Inheritance tax is where a little planning can pay dividends in the future. This might be by making full use of your annual gift allowance of £3,000 (£6,000 for married couples), putting assets into trust or re-writing your will.
A new IHT Residence Nil Rate Band (RNRB) was introduced in April 2017. It is in addition to 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 Residence Nil Rate Band 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.
Capital Gains Tax
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 allowance for the 2019/20 tax year is £12,000 per person, meaning 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.
Boost your children’s savings
The Junior ISA limit is set at £4,368 for this tax year. So why not take the time to give your children’s savings a boost by making sure they reach the limit. You may even want to contribute to your adult children’s Lifetime ISA if he or she has one and the government will provide a bonus of 25% of the money invested, up to £1,000 per year.
Your dividend allowance
If you receive dividends through a Stocks and Shares ISA or you are a company shareholder or director, you can currently receive £2,000 worth of dividends tax free.
If you have any questions surrounding what we have mentioned above or if you would like to talk about your financial plan, do not hesitate to speak to your point of contact today.