15th February: Are you using all your tax allowances and reliefs?

Have you reviewed your finances to ensure you’ve used up every allowance and relief you’re entitled to, before 5th April?

We’re nearly at the end of this financial year!

Each financial year (6th April – 5th April), there are various tax allowances and reliefs available to you.

Some of these allowances are NOT carried over so if you don’t use them, you’ll simply lose them! Forever…

You may want to check of the things you can review to maximise your financial position:

1. Check you’re paying the correct Income Tax

• Make sure you’re on the right tax code* to ensure you’re not paying too much tax – check by looking at your last payslip

• If you’re a business owner, check the balance between your salary and dividends to make the most of your personal allowance and the lower tax rate on dividends

• If you are married or in a civil partnership you may be able to save money by structuring your finances as a couple. If one of you pays no tax (or earns less than the Personal Allowance), you could transfer £1,260 of your allowance to the other person

* Check tax code information here: Gov.UK Tax Code Info

2. Maximise your contributions into an ISA

You can save up to £20,000 into your ISA(s) annually, without paying income tax or capital gains tax (CGT).

Bear in mind the allowance doesn’t carry over between tax years, so once the tax year ends, any unused allowance is lost forever.

The annual limits for ISAs during the 2021/22 tax year are:

Cash, Stocks and Shares ISA: £20,000

Junior or Children’s ISA: £9,000

Help to Buy ISA: £200 a month (existing accounts only – you can’t open a new account)

Lifetime ISA: £4,000

You can pay into both your individual ISA and a child’s junior ISA as long as you don’t exceed the annual allowances.

3. Top up your Pension

Saving into your pension pot is one of the best ways to save for retirement, particularly as you get income tax relief on the money you put in.

For most people, this is up to £40,000 this tax year, or 100% of your salary (whichever is lower).

If you’re a higher earner with an annual income of over £200,000, your annual pension contribution allowance might gradually reduce to as low as £4,000 in the current tax year.

This is known as the “tapered annual allowance”.

Topping up your pension contributions before the end of this tax year could add a significant amount to your total pension pot over the long term.

If you don’t use all your personal allowance this year, you can ‘carry it forward’, but only for up to 3 years.

As pension planning can be quite a complex area, it may help to speak to a professional who can help you make the most of retirement savings and the tax reliefs available.

4. Gift Wisely

It’s only natural to give your loved ones gifts, but did you know cash gifts could be counted as part of your estate for inheritance tax (IHT) purposes?

• You can gift up to £3,000 each tax year, IHT-free

• A couple can combine their allowance to gift up to £6,000 in the tax year

• If you have any unused allowance, you CAN carry it over for a year

Paying into a Junior ISA or a pension for your children or grandchildren are effective ways of passing on your wealth tax efficiently and reduce your future inheritance tax liability.

Any gifts over and above these annual allowances MAY be liable to IHT in the future, so it’s important to speak to an expert who can recommend ways to mitigate any potential liability.

5. Capital Gains Tax

Capital Gains Tax (CGT) is a tax you pay on any profit you make when selling (or ‘disposing of’) something (an ‘asset’) that has increased in value since you bought it.

You pay CGT on ‘chargeable assets’ such as:

• most personal possessions worth £6,000 or more, apart from your car

• property that isn’t your main home

• your main home if you’ve let it out, used it for business or if it’s very large

• shares that are not in an ISA or Personal Equity Plan (PEP)

• business assets

The annual tax-free allowance in the current (2021/22) tax year is £12,300.

The rate you pay on profit above £12,300 depends on the level of income tax you pay.

You’ll pay 10% if you’re a basic-rate taxpayer and 20% if you’re a higher-rate payer).

CGT can be a tricky area to understand. It is important you don’t fall into the trap of paying unnecessarily, or risk being fined for not paying when you should have.

A financial adviser can help you look at ways to reduce your Capital Gains Tax liability.

6. Regain your Child Benefit allowance

If your income or your partner’s income is over £50,000, you’ll have lost some or all your child benefit allowance.

By keeping your taxable income below the £50,000 threshold you could regain some of your allowance – for example, by making personal contributions into your pension.

By taking advantage of the tax-free childcare scheme, you could benefit from up to £500 every 3 months (up to £2,000 a year) for each of your children to help with childcare costs.

For every £8 you pay your childcare provider, the government will pay £2 towards these costs.

Your eligibility depends on:

• your working status (you need to be working)

• your income (and, if applicable, your partner’s income)

• your child’s age and circumstances

• your immigration status

To see whether are eligible please visit: Tax-free Childcare

7. Review your Finances

Now is the perfect time to take stock of your finances making sure you’ve accounted for the relevant tax year’s allowances and exemptions.

Whilst implementing a budget might feel like a daunting task initially, it can be very beneficial to reclaim control over your finances and feel prepared for the year ahead.

Read Quilter’s top tips to help you take control of your finances this year: Quilter Article

More information on annual allowances and exemptions https://www.gov.uk/can be found here: Gov.UK Allowances

Ideally, you should seek financial advice to ensure you are making the best possible decisions for your personal circumstances and benefiting from any reliefs available to you.

Tax treatment varies according to individual circumstances and is subject to change.

Tax planning & Inheritance Tax Planning are not regulated by the Financial Conduct Authority.

The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested.

Investors do not pay any personal tax on income or gains, but ISAs do pay unrecoverable tax on income from stocks and shares received by the ISA managers.

Please get in touch if we can help you with anything before the new tax year starts on 6th April.

Heide x

Telephone: 01525 309300

Mobile: 07903 302895