The end of the tax year is fast approaching, so now is a great time to talk to us about making the most of tax efficient opportunities. The 2019/20 tax year ends on 5 April 2020, with the new tax year beginning on 6 April. These are important dates for financial planning – so it’s important you don’t miss the chance to undertake a financial health check, fine tune your tax planning and ensure that you make the most of your valuable tax allowances.
Here’s my top tips to help you make the most of your money.
Invest in an ISA
ISA’s are one of the simplest ways to save and invest. Investments in an ISA are free from UK income tax and capital gains tax and since their launch, they have become more and more attractive. Today investors can shelter up to £20,000 from the taxman in an ISA each tax year, meaning that couples can contribute £40,000 between them into ISA’s.
Don’t forget, the ISA allowance for a particular tax year is lost if not used – and there’s no way of carrying it over.
Make a pension contribution
A pension is one of the most tax-efficient ways to save for retirement as pensions can grow free of UK capital gains and UK income tax.
Money held in a pension is locked away for retirement. You can normally start making withdrawals from age 55 (57 from 2028), usually up to 25% tax free and the rest taxed as income.
Pensions are more attractive than ever as you now have the flexibility to make unlimited withdrawals. Anything you don’t withdraw can be passed on to your family, sometimes without any tax.
When an investor under 75 adds money to a pension, they automatically receive a boost from the government, which pays 20%. To have £10,000 in your pension, you only need to pay £8,000.
In addition, higher-rate taxpayers can then claim back up to an extra 20% via their tax return. So, £10,000 in a pension could effectively cost as little as £6,000. Top-rate taxpayers can claim back more: up to an extra 25%, reducing the effective cost of the £10,000 contribution to as little as £5,500. Please note that you must pay enough tax at the higher/top rate to be able to claim back the full amount.
Even if you're not a taxpayer – eg, you don't earn enough to pay income tax – but are contributing to a pension, you'll still have the tax saving added to your contributions up to a certain amount. You'll be given an extra £20 for every £80 you pay into a pension up until you've contributed £2,880. This means the Government tops up your pension to £3,600.
Use your capital gains tax allowance
The capital gains tax allowance in 2019-20 is £12,000. This is the amount of profit you can make from an asset this tax year before any tax is payable.
If your assets are owned jointly with another person, you can use both of your allowances, which can effectively double the amount you can make before CGT is due. You could also gift assets to a spouse or civil partner without any CGT being charged, which then allows them to make the most of their CGT allowance.
As with your ISA allowance, if you don't make full use of your CGT allowance in a given tax year, you aren't allowed to carry it forward to the next.
Make use of the marriage allowance
The marriage allowance is a government scheme designed to give married couples income tax relief. Essentially, you’re able to transfer some of your tax-free allowance to your spouse if you earn less than the current personal allowance – and as long as they are a basic rate taxpayer. In doing this, they can reduce their tax bill by up to £250 over the year.
This can be a great option for people on maternity leave, stay-at-home parents, retired, self-employed and unemployed people. The best way to apply for the marriage allowance is online at https://www.gov.uk/apply-marriage-allowance
If you would like to review your finances to ensure that you are making the most of your valuable tax allowances, please do not hesitate to contact us for an initial no obligation consultation at our cost.
The value of your investment (and any income from them) can go down as well as up and you may not get back the full amount you invested. Please note though that the levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.
The Financial Conduct Authority does not regulate tax advice.