Tax Planning - making the most of your tax allowances
Posted by siteadmin on Tuesday 11th of February 2020.
With the deadline of the self-assessment tax return having just passed, you may be contemplating how you can plan carefully to make the most of your tax allowances in the new financial year.
A tax allowance refers to money which is exempt from your total taxable income.
Here are some key ways in which you can make the most of tax allowances:
1. Utilise ISAs
ISAs such as the Help-to-Buy or Lifetime ISA can carry significant tax allowances.
Each financial year, you can pay up to £20,000* into any ISA without being subject to tax on the savings. Lifetime ISAs carry a tax allowance of £4,000 per financial year (included within the £20,000 overall ISA tax allowance).
A bed and ISAcan be another way in which you can make the most of tax allowances through ISAs. If you hold funds in a general account, it may be worth investing the funds and using the proceeds to open up or add to an ISA. Many banks will assist you with the bed and ISA process, to help to make the transaction as simple as possible.
2. Make the most of your gift allowance
Every individual has a gift allowance of up to £3,000 per year*, which is exempt from the Inheritance Tax. This allowance can be up to £6,000 per year*, providing the allowance was not used in the previous year. Read more about gifting here: Gifting at Christmas - or any other time
If it is within your means, consider gifting to family, friends or charity to utilise the tax allowance available for gifted funds.
3. Transfer between spouses
Married couples, or those in civil partnerships, can transfer up to £1,250* to their partner, providing one of them earns less than the £12,500 personal allowance threshold (the maximum limit of tax-free income). This tax allowance can save you up to £250 in tax over the year.
4. Pay into pensions
The annual pension allowance per person currently stands at £40,000*, or 100% of your annual earnings, whichever amount is lower. This means that you can contribute up to £40,000 into your pension fund and not be eligible to pay tax on the amount.
You can also carry forward any unused allowances from up to three previous years, providing you were part of a pension scheme during that period.
There are a variety of tax allowances available across the UK which can help you to save, increase your pension fund and invest.
If you would like to know more about making the most of your tax allowances, get in touch [internal link] or call 0121 285 8528.
DISCLAIMER: The tax treatment depends on an individual’s circumstances and may be subject to change in the future.
The value of your investments can go down as well as up, so you could get back less than you invested.
*These are known allowances in accordance with current HMRC rules and can be subject to change.