The end of the 2020/21 tax year is fast approaching on 5th April 2021. It’s worth making sure that all of your ducks are in a row, as many of the allowances we can enjoy are on a “use it or lose it” basis. Don’t miss out!
- Maximise your ISA allowance. You can pay up to £20,000 across all of your ISA wrappers (stocks and shares, cash ISAs, lifetime ISAs etc). However, remember that you can’t pay into more than one ISA of the same type in the same tax year.
- Maximise your Lifetime ISA allowance. You can pay up to £4,000 each tax year into a lifetime ISA and the government will pay a 25% bonus, so £5,000 is invested. As long as you open the ISA before age 40 you can carry on paying in and receiving bonuses until you’re 50. Remember that what you pay in counts against your overall £20,000 ISA limit and the funds can’t be accessed without penalty unless you’re buying your first home or you are aged 60 and above.
- Maximise your pension contribution allowance. You and your employer can potentially pay in a total of £40,000 into your pension each year, although this may be different if you are a high earner or have taken flexible benefits from your pension fund. The most you can pay as an individual whilst enjoying tax relief is 100% of your earnings for the year, subject to the £40,000 maximum. In some circumstances, pension contributions can restore child benefits or your personal allowance, giving higher rates of effective tax relief.
- Carry forward unused pension allowances. If you haven’t flexibly accessed your benefits you could potentially maximise your pension contributions beyond £40,000 by carrying forward unused allowance from the previous three tax years. Unused allowance from 2017/18 will soon fall out of account…
- Pay into your spouse’s/child’s/grandchild’s pension. Almost everyone under age 75 can receive £720 tax relief when £2,880 is paid into their pension, even if they have no earnings.
- Pay into your child’s/grandchild’s Junior ISA. You could pay up to £9,000 into a Junior ISA each tax year and the same tax-free status as an ISA is enjoyed without any tax re-percussions on you as the parent.
- Use your capital gains exemption. Each tax year you can sell assets/investments subject to capital gains tax and the first £12,300 will be tax free. If this allowance is not used, it is lost. If you have already used yours, you could consider gifting to your spouse/civil partner before sale to use their allowance or potentially benefit from lower tax rates.
- Make gifts to reduce your Inheritance Tax (IHT) liability. There are many exemptions that can be used but you can reduce your liability by gifting up to £3,000 each tax year, without the usual seven year gift clock you may have heard about. This allowance can be rolled over into the next tax year but no further. A couple could therefore gift up to £12,000 with IHT strings attached if they had not used the previous years’ allowances.
- Consider tax incentives investments such as Venture Capital Trusts and Enterprise Investment Schemes. These also offer attract tax relief for the tax year. However, they are for experienced/sophisticated investors only.
- Marriage allowance. If you are a basic rate tax payer and your spouse/civil partner hasn’t used all of their personal allowance, they can transfer up to £1,250 of the allowance to you and reduce your tax bill by up to £250. Claims for this can also be backdated any tax year since 5th April 2016 if you were eligible.
Please note that the above information does not constitute advice but if you would like to discuss your individual circumstances we’d love to hear from you.