Making the Most of Tax Relief

As we mark the end of another tax year, this is a key time to review your financial planning arrangements. Are you making the most of the tax relief opportunities available? Our wealth managers have pulled together some of our top tips on how to make your money work harder this year.

1. Assess your Pension Plans

• Automatic enrolment has been a huge success to date and helped thousands more people efficiently save for retirement. Pension contributions provide income tax relief at up to your top tax rate – this is provided that the individual has enough income taxed at higher rates to receive tax relief at those rates. For example, ￡10,000 of income in the higher rate band and ￡15,000 gross pension contributions will receive 40% tax relief on ￡10,000 and only 20% on the other ￡5000.
• You are also entitled to a tax-free Personal Allowance. For high earners, the Personal Allowance begins to reduce by ￡1 for every ￡2 of income you have above ￡100,000 and the allowance is lost entirely with income of ￡125,000 or more.
• Take specialist financial advice if you fall into this bracket but one way to provide relief can be upping your pension contributions to glean some of your allowance back (as this will reduce the income that is taken into account for personal allowance purposes).

2. Consider Investments and Savings Vehicles

• Make the most of your tax-free ISA allowance where you can save or invest up to ￡20,000 a year without paying a penny of tax (or ￡40,000 a year between you and your spouse).
• You can also utilise the Junior ISA (for a child under 18) or Lifetime ISA (available to those aged 18-39) as additional tax-free savings vehicles. Investment into venture capital trusts can be a good option in some cases with the benefit of tax relief at 30 per cent on investments up to ￡200,000 each year (or the level of the investor’s income tax bill if less).

3. Utilise Your Capital Gains Tax Allowance

• The annual capital gains tax (CGT) exemption for this tax year 2019/2020 is ￡12,000 per individual, which means a joint allowance of ￡24,000 for couples. You could realise gains on shares or unit trusts to make the most of these allowances. You might also wish to consider transferring assets into both of your names or making gifts to your spouse to avoid going over the allowance – a spouse transfer does not itself create a tax charge and as long as the transfer is a genuine and unconditional gift, this can enable more than one CGT allowance to be used.

Remember, not every investment portfolio is subject to CGT, therefore it is worth considering more tax-efficient ways to invest.

4. Minimise your Inheritance Tax Bill

• Make the most of your annual IHT exemption where individuals or couples can give away ￡3,000 or ￡6,000 worth of gifts respectively and these amounts are immediately outside of their estates. This can also be carried forward for one year as long as the current year’s allowance is also used up.

All of these options are associated with different benefits. Contact us for advice on any of the above as well as additional tax relief opportunities.

Email: [email protected] or call 020 8371 3111

The Financial Conduct Authority does not regulate tax advice.