Are you making the most of end of tax year planning opportunities?
Boost your pension or think about using your ISA allowances
The 2020/21 tax year finishes on April 5, which means there’s just over a month to use valuable tax planning opportunities and allowances – or risk losing some of them for good.
Here’s our rundown of some of the things you might want to consider doing before the end of the tax year. Bear in mind though, that the Budget will be announced on Wednesday (March 3) so keep an eye out for any changes that could affect your plans. It’s also worth noting that this year, April 5 falls the Easter Monday bank holiday, and the Friday before is also a bank holiday, so the last working day of this tax year will be April 1.
Boost your pension
One of the best things about pensions is the upfront tax relief you’ll receive on any contributions – you’ll get 20% automatically, and higher and additional rate taxpayers can claim extra tax relief via their self-assessment tax returns.
The maximum amount you can pay into your pension this tax year, known as your Annual Allowance, is £40,000. You can pay into your own pension but also a family member’s pension if you want to. Any contribution from one individual to another family member is treated as if it is the member’s own contribution into their pension.
Alexandra Price, director of financial planning at Charles Stanley said: “It’s well known that your employer can pay into your pension, but so too can your partner. Your pension pot is a great asset to have, and comes with tax benefits, so it’s important to make the most of it. If one of you isn’t working for any reason, such as taking maternity leave, you can use the other’s income to top up your pension savings.”
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Minimise any potential IHT liability
If the value of your estate is more than £325,000 when you die, inheritance tax will usually be payable at a rate of 40% on anything above this threshold. There is also a £175,000 ‘family home allowance’ which can be used against the value of your property if you leave it to your children or grandchildren. Only assets you leave to your spouse or civil partner are exempt from inheritance tax, and they will also benefit from any percentage of your allowance that remains unused when you die.
If the value of your estate is near or above the current IHT threshold, the good news is there are several annual allowances available which enable you to pass on some of your wealth free of inheritance tax.
Kay Ingram, director of public policy at national financial planning group LEBC, said: “Some gifts are tax-exempt and fall outside of the inheritance tax net immediately. These include total gifts of up to £3,000 each tax year, up to £250 per recipient per year or any amount paid on a regular basis and out of surplus income. Larger capital gifts may take up to seven years to leave the taxable estate, and if making larger one-off gifts, professional advice may be required.”
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Think about using your ISA allowances
Each person has an allowance of £20,000 a year which can be paid into tax-efficient individual savings accounts (ISAs), which means if you’re part of a couple you can put away up to £40,000 per year tax-free.
Bear in mind that if you don’t use your ISA allowance by April 5, it’ll be gone for good. You can choose from a stocks and shares ISA, cash ISA, an Innovative Finance ISA, where your money is lent via a peer-to-peer lending platform, or you can split your allowance across a combination of these. You’ll get a new £20,000 allowance on April 6, when the 2021/22 tax year begins.
You can also pay into Junior ISAs on behalf of your children. Mr Goldthorpe said: “If you have kids under 18, make sure they’ve had their full allowance contribution. The allowance was more than doubled last year from £4,368 to £9,000 – if you’ve missed that it would be easy to not realise you could add more.”
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