Here’s how to make the most of tax year end
Wes Wilkes
Champion of Advice Finalist (March 25????) | Wealth Mentor & Investment Manager - passionate about the value of advice and building financial plans to make lives immeasurably richer
The build-up to tax-year end is always crucial for financial planning. April 5 is the last day of the current tax year, so you still have until then to make the most of several allowances – and potentially give your savings a boost.
Here’s a rundown of the main areas to think about.
Max out your ISA
One of the easiest ways to grow your savings tax-free is by using an Individual Savings Account (ISA). The annual allowance is ￡20,000 for the current tax year.
While some annual allowances can be carried forward into the new financial year, when it comes to ISAs it’s a case of ‘use it or lose it’.
Boost your pension pot
Paying extra into your pension could help you reduce your tax bill thanks to Income Tax Relief. The pension annual allowance is currently ￡60,000 or 100% of your earnings (whichever is lower), although this includes any employer contributions. The good news is that if you don’t use all your ￡60,000 annual allowance you can carry it forward to the next financial year for a maximum of three years.
There are some stringent rules around this however and depending on your circumstances, your allowance may be lower than the usual ￡60,000. This is just one example where financial advice based on your personal circumstances is vital.
Income Tax Relief allows you to exclude some of your income from assessment when you invest in your pension this way. If you’re able to do this early on and ‘frontload’ your pension pot, you’ll also reap the benefits of earning compound interest.
Use your Capital Gains Tax allowance
If you have investments outside of an ISA, you might be subject to Capital Gains Tax (CGT) when selling them. CGT allowance is now just ￡3,000 – half of what it was last financial year, and a fraction of the old rate of over ￡12,000. But it’s not all bad news. Unless you’ve been lucky enough to sell off a Monet in the last year, it’s perfectly possible that you won’t be too much above that threshold, so you won’t face a nasty tax bill.
If you’re in a position to be able to comfortably sell such assets, you could generate a tax-free sum that you’re able to invest in an ISA or your pension.
Review your dividend allowance
If you earn income from dividends, be aware that the tax-free dividend allowance is reducing from ￡1,000 to ￡500 next tax year. If you hold dividend-paying shares outside an ISA, consider moving them into an ISA to protect your income from tax.
Gift money tax free
If you’re thinking about estate planning, using your annual gifting allowances can help reduce a potential inheritance tax bill.
Check other allowances
And finally, if you’re married (or in a civil partnership) making the most of your Marriage Allowance can help reduce your tax liability by increasing your personal allowance.
Around 2 million eligible couples in the UK are missing out on this opportunity. If your spouse or civil partner doesn’t work or earns less than their personal allowance (￡12,570), then – providing you earn more than them but are still a basic rate taxpayer – they can gift you ￡1,260 of their personal allowance. It may not be a huge tax saving, but every little helps.
So, the message is, don’t wait until it’s too late; check to see whether you’re making the most of these allowances. If you need help please get in touch.
In the meantime here is some interesting further reading:
Time is ticking ???