We know the tax year runs from 6 April 2019 to 5 April 2020, yet effective tax planning needn’t be left until the end of the tax year. Here’s some tips to get you ahead.
1. Consider topping up your pension.
Normally, between you and your employer, you can pay a maximum of £40,000 (or 100% of earnings) into your pension in a tax year (it’s called your annual allowance) before it becomes subject to tax. Carry forward of your annual allowance may be available. Although a lower limit of £4,000 may apply if you have already started accessing your pension.
Steps to consider when you’re looking at maximizing your pension pot:
i There may be ways to increase your basic State Pension if you aren’t eligible for the full amount (£168.60 per week). So, you could be eligible to boost your basic State Pension by paying voluntary Class 3 National Insurance Contributions (NICs).
ii 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.
iii. Everyone is entitled to a tax-free Personal Allowance. This is the amount of income you don’t pay any tax on, and currently stands at £12,500. But you begin to lose this when you have a total income over £100,000 (and you don’t get anything if you have an income of £125,000 or more). By increasing your pension contributions, you could get some of your allowance back.
2. Limiting your inheritance tax.
One way you can do this is by giving away up to £3,000 worth of gifts (such as money or possessions) each tax year, so they are no longer included when the value of your estate is calculated. This is known as the annual exemption.
The exemption applies to individuals, so as a couple you can make £6,000 worth of gifts It can also be carried forward for one year so, if you didn’t do this last year (2018/19), then you can, as a couple, make £12,000 worth of gifts before 6 April 2020. You can act at any time to help reduce a potential inheritance tax (IHT) bill. An IHT bill only applies if your estate is valued above £325,000.
3. Your ISA allowance: It’s nearly always worth using it if you can
Make sure you make good use of your tax-efficient ISA allowance. The allowance for 2019/20 is £20,000 per person, whilst the Junior ISA allowance (or Child Trust Fund - CTF) is now £4,368 for children under 18. But did you know, 16 and 17-year-olds get two ISA allowances? They’re
able to open a Junior ISA (or pay into their existing CTF but you can’t have both and can no longer open a new CTF) which for 2019/2020 has a limit of £4,368) and an adult cash ISA (which for 2019/2020 has a limit of £20,000).
4. Benefits of making charitable donations.
Will you be donating to any worthwhile causes during the 2019/2020 tax year? If you are, you can receive tax relief on your contributions through Gift Aid (or straight from your wages or pension via Payroll Giving). Your donations will qualify if they’re not more than 4 times what you
have paid in tax in that tax year (6 April to 5 April).
Another concession for taxpayers who give to charity is that you can donate now and
have the tax relief applied to last year’s return.
5. Be smart with your Capital Gains Tax allowance
Capital Gains Tax (CGT) is a tax on the gains (i.e. profit) you make when you sell something, such as an investment portfolio or second home. But everyone has an annual allowance before CGT applies, of £12,000 (in 2019/20). Couples will have a joint allowance for 2019/20 of£24,000.
It may be worth considering transferring an asset into your joint names (if it represents a genuine gift) so you both stay within your individual allowances. If you’re looking for a tax-efficient way to invest, a Stocks and Shares Individual Savings Allowance (ISA) could be ideal. If you do make a profit due to share price increases or growth in other assets, you won’t be required to pay CGT on it.
6. Check you aren’t exceeding your dividend allowance.
It’s £2,000 for 2019 to 2020 but was £5,000 in earlier tax years (April 2016/2017 and April 2017/2018).
7. Landlords and tax relief changes
By April 2020 all tax relief for finance costs will be restricted to the basic rate of income tax, (currently 20%). Relief will be given as a reduction in tax liability instead of a reduction to taxable rental income.
During 2019-2020 Tax Year you can still claim higher rates of tax relief on your finance costs. It may be worth getting some financial advice regarding your current mortgage arrangement.
The Financial Conduct Authority does not regulate taxation advice. The value of pensions and investments and the income they produce can fall as well as rise. You may get back less than you invested. Tax treatment of pensions and investments varies according to individual circumstances and is subject to change.
1. Consider topping up your pension.
Normally, between you and your employer, you can pay a maximum of £40,000 (or 100% of earnings) into your pension in a tax year (it’s called your annual allowance) before it becomes subject to tax. Carry forward of your annual allowance may be available. Although a lower limit of £4,000 may apply if you have already started accessing your pension.
Steps to consider when you’re looking at maximizing your pension pot:
i There may be ways to increase your basic State Pension if you aren’t eligible for the full amount (£168.60 per week). So, you could be eligible to boost your basic State Pension by paying voluntary Class 3 National Insurance Contributions (NICs).
ii 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.
iii. Everyone is entitled to a tax-free Personal Allowance. This is the amount of income you don’t pay any tax on, and currently stands at £12,500. But you begin to lose this when you have a total income over £100,000 (and you don’t get anything if you have an income of £125,000 or more). By increasing your pension contributions, you could get some of your allowance back.
2. Limiting your inheritance tax.
One way you can do this is by giving away up to £3,000 worth of gifts (such as money or possessions) each tax year, so they are no longer included when the value of your estate is calculated. This is known as the annual exemption.
The exemption applies to individuals, so as a couple you can make £6,000 worth of gifts It can also be carried forward for one year so, if you didn’t do this last year (2018/19), then you can, as a couple, make £12,000 worth of gifts before 6 April 2020. You can act at any time to help reduce a potential inheritance tax (IHT) bill. An IHT bill only applies if your estate is valued above £325,000.
3. Your ISA allowance: It’s nearly always worth using it if you can
Make sure you make good use of your tax-efficient ISA allowance. The allowance for 2019/20 is £20,000 per person, whilst the Junior ISA allowance (or Child Trust Fund - CTF) is now £4,368 for children under 18. But did you know, 16 and 17-year-olds get two ISA allowances? They’re
able to open a Junior ISA (or pay into their existing CTF but you can’t have both and can no longer open a new CTF) which for 2019/2020 has a limit of £4,368) and an adult cash ISA (which for 2019/2020 has a limit of £20,000).
4. Benefits of making charitable donations.
Will you be donating to any worthwhile causes during the 2019/2020 tax year? If you are, you can receive tax relief on your contributions through Gift Aid (or straight from your wages or pension via Payroll Giving). Your donations will qualify if they’re not more than 4 times what you
have paid in tax in that tax year (6 April to 5 April).
Another concession for taxpayers who give to charity is that you can donate now and
have the tax relief applied to last year’s return.
5. Be smart with your Capital Gains Tax allowance
Capital Gains Tax (CGT) is a tax on the gains (i.e. profit) you make when you sell something, such as an investment portfolio or second home. But everyone has an annual allowance before CGT applies, of £12,000 (in 2019/20). Couples will have a joint allowance for 2019/20 of£24,000.
It may be worth considering transferring an asset into your joint names (if it represents a genuine gift) so you both stay within your individual allowances. If you’re looking for a tax-efficient way to invest, a Stocks and Shares Individual Savings Allowance (ISA) could be ideal. If you do make a profit due to share price increases or growth in other assets, you won’t be required to pay CGT on it.
6. Check you aren’t exceeding your dividend allowance.
It’s £2,000 for 2019 to 2020 but was £5,000 in earlier tax years (April 2016/2017 and April 2017/2018).
7. Landlords and tax relief changes
By April 2020 all tax relief for finance costs will be restricted to the basic rate of income tax, (currently 20%). Relief will be given as a reduction in tax liability instead of a reduction to taxable rental income.
During 2019-2020 Tax Year you can still claim higher rates of tax relief on your finance costs. It may be worth getting some financial advice regarding your current mortgage arrangement.
The Financial Conduct Authority does not regulate taxation advice. The value of pensions and investments and the income they produce can fall as well as rise. You may get back less than you invested. Tax treatment of pensions and investments varies according to individual circumstances and is subject to change.
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