Posted on: 09 Mar, 20
Tax is never a one-size-fits-all approach: each taxpayer and each year will be different. And with the current tax year-end approaching, this is a perfect time to carry out a tax health check and implement any planning opportunities before the end of the 2019/20 tax year.
There are a number of valuable allowances and reliefs that will be lost if they are not used before the deadline. These opportunities include, but are not limited to, these four important areas of tax planning that should be considered. We’ve summarised these allowances below and suggest that, if appropriate to your particular situation, these areas should be reviewed before 5 April 2020.
We’ve provided our top end-of-year tax tips to help you save time and money on your taxes.
1. Take your ISA contributions to the max The term ISA stands for ‘Individual Savings Account’ and allows you to save tax-efficiently into a cash savings or investment account.
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. Your ISA allowance doesn’t roll over into a subsequent tax year, so if you don’t use it, you’ll lose out forever. If you are in a position to, it may make 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, 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 the current tax year.
Also, 16 and 17-year-olds actually have two ISA allowances, as they’re able to open a Junior ISA (which for 2019/20 has a limit of £4,368) and an adult Cash ISA. This means that you could 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 tax-efficiently a year until they’re 50. The Government will top up the savings by 25%, up to a maximum of £1,000 a year.
Viewing your and your spouse’s allowance as one will allow you to make the most of these tax advantages.
2. Make the most of your pension tax reliefs Now is also the time to check you are taking full advantage of your pension tax reliefs and allowances. Normally, between you and your employer, you can contribute a maximum of £40,000 into your pension in a tax year (called your ‘annual allowance’) before it becomes subject to Income Tax. It’s important not to exceed this limit – which is set at either 100% of your salary or £40,000 (whichever is lower). However, for high earners with a taxable income of more than £150,000 per year, this is tapered downwards.
If you don’t manage to make full use of your £40,000 pensions annual allowance this tax year, you can carry it forward for up to three years. For example, in the current 2019/20 tax year, you could carry forward unused contributions from 2016/17, 2017/18 and 2018/19, but the clock re-starts on 6 April this year.
Everyone is entitled to a tax-free personal allowance. This is the amount of income you don’t pay any Income Tax on, and for 2019/20 stands at £12,500. If your income is above £100,000, the basic personal allowance is reduced by £1 for each £2 you earn over the £100,000 limit, irrespective of your age.
However, you could get some of your allowance back by increasing your pension contributions, as the income on your tax return will be lower to take your extra pension contributions into account.
You can also increase your basic State Pension by making voluntary Class 3 National Insurance Contributions (NICs).
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