With less than one week remaining in the current 2019/2020 tax year, make sure you don’t miss the deadline to claim important allowances and reliefs.
As 5 April approaches, the window of opportunity reduces to make the most of valuable allowances, reliefs and exemptions that could help reduce your tax bill and make sure your finances are as tax-efficient as possible. In this blog, we have highlighted some of the main allowances and schemes to consider, but you should be aware that this list isn’t exhaustive.
Please also see our latest guide: ‘2019/20 Tax year-end planning’ for further information on how to maximise your portfolio before the tax year-end. Unless you act now, some of these allowances will be lost forever. If you would like to discuss your financial position, please contact us.
Individual Savings Account (ISA) allowance
With a Cash ISA or a Stocks & Shares ISA (or a combination of the two), you can save or invest up to £20,000 a year tax-efficiently.
If you are in a position to, it makes sense for you and your spouse to take advantage of each other’s ISA allowance, particularly if one of you has more financial resources than the other. That way, combined, you can save (in the case of Cash ISAs) or invest (in the case of Stocks & Shares ISAs) up to £40,000 tax-efficiently in 2019/2020.
Currently, 16 and 17-year-olds actually get two ISA allowances, as they’re able to open a Junior ISA (which for 2019/ 2020 has a limit of £4,368) and an adult Cash ISA. This means that you can put away up to £24,368 in your child’s name tax-efficiently this tax year.
People aged 18-39 can open a Lifetime ISA, which entitles them to save up to £4,000 a year until they’re 50, which can be used to buy a first home or towards retirement. The Government will top up the savings by 25%, up to a maximum of £1,000 a year.
The annual pensions allowance enables you to contribute up to £40,000 in 2019/ 2020. If your adjusted income exceeds £150,000 in 2019/ 2020, your annual allowance will be reduced by £1 for every £2 that exceeds this threshold down to a limit of £10,000.
Any unused pensions annual allowance can be carried forward for three tax years, providing you were a member of a registered pension scheme during that period. This unused allowance can be added to your 2019/20 annual allowance, giving a maximum pension contribution of £160,000, all of which will attract personal tax relief if you have the required level of relevant earnings.
You can also increase your basic State Pension by paying voluntary Class 3 National Insurance Contributions (NICs).
Consider contributing up to £2,880 towards a pension for your non-earning spouse or children. Tax relief is added to your contribution, so if you contribute £2,880, a total of £3,600 a year will be paid into the pension scheme, even if you earn less than this or have no income at all. You begin to lose your personal allowance once your adjusted net income exceeds £100,000, such that the allowance reduces to £0 when adjusted net income reaches £125,000.
You can act at any time to help reduce a potential Inheritance Tax (IHT) bill when you’re no longer around.
Gifts of up to £3,000 per year can be made on an IHT-free basis. The limit increases to £6,000 if the previous year’s annual exemption was not used.
A married couple can therefore make IHT-exempt gifts totaling £12,000 – if unused, the annual allowance can be carried forward to the next tax year only. This simple technique could save a possible IHT bill of £4,800 in the event of your untimely death.
You should also consider using other annual gifts such as gifts in consideration of marriage or £250 small gifts.
Business Relief (BR) is a valuable IHT relief, with business property potentially receiving up to 100% relief if certain criteria are met. BR is an important part of succession planning, but due to the complexity of the BR rules, the relief may not be due even though you expect to meet the conditions. It is important to regularly review your BR position to ensure that it continues to apply and that your business activities do not jeopardise your BR position.
Capital Gains Tax allowance
Capital Gains Tax (CGT) is a tax on the gains and profits you make when you sell something, such as an investment portfolio or second home.
Everyone has an annual allowance of £12,000 (in 2019/ 2020) before CGT applies. Like the ISA allowance, it doesn't roll over, so if you don't use it, you'll lose out. And you may have to pay more CGT in the future.
Also, it's worth remembering the allowance is for individuals, so couples have a joint allowance for 2019/20 of £24,000. In some situations, it may be appropriate to transfer assets into your joint names so you both stay within your individual allowances. However, this is only effective if the gift is a genuine gift of beneficial ownership, and the transferor does not continue to benefit from the asset following the transfer.
Not every investment portfolio is subject to CGT. If you're looking for a tax-efficient way to invest, a Stocks and Shares ISA could be for you. Just like any investment, it carries risk - meaning you could lose some or all of your money - but if you do make a profit due to share price increases, you won't be required to pay CGT on it.
A Bed & ISA will allow you to utilise the current year's ISA allowance by moving investments not held in an ISA (i.e. from an unwrapped environment) to the ISA tax-efficient wrapper. This is achieved by selling the unwrapped investment and repurchasing it via an ISA. The disposal of the unwrapped investments may be liable to CGT, but once inside the ISA, the investments are sheltered from CGT in the future. If there is a particular area you are interested in, please do not hesitate to contact us, we look forward to hearing from you.
Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from, taxation are subject to change.
The tax benefits relating to ISA investments may not be maintained. Tax rules are complicated, so you should always obtain professional advice.
A pension is a long-term investment.
Pensions are not normally accessible until age 55. Your pension income could also be affected by interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.