It’s always important to understand exactly where you are and what your financial position is. But as we approach the end of the tax year, it’s an especially good time to make sure that you have made the most of the allowances available to you. Here are some of the key things to look out for.
Use your Individual Savings Account (ISA) allowance
Adults can contribute £20,000 to an ISA each year, whilst children under the age of 16 can contribute up to £9,000 each tax year. If you don’t use your allowance in the tax year, it is lost – it doesn’t roll over.
With ISAs not being subject to either Income Tax or Capital Gains Tax, we encourage our clients to invest in them soon after the start of the tax year, to ensure that they are invested as tax efficiently and as early as possible.
Based on current rules (February 2022), it’s possible for you to contribute up to £160,000 into a pension scheme and benefit from full tax relief. However, the amount you can contribute will depend on the source of funds, how much you earn, how much you have already contributed in the current and the previous three tax years. We can help with those calculations.
However, even if you have no earnings, most people can contribute up to £3,600 per annum and receive tax relief.
If you are contributing and are a higher or additional rate taxpayer, don’t forget to confirm your contributions on your Self-Assessment Return to claim the additional tax relief.
Capital Gains Tax (CGT) harvesting
Each year, everyone has a CGT allowance – it’s currently £12,300 in the 2021/22 tax year. By using your allowances efficiently each year, you can potentially significantly reduce tax liabilities. If not used, this allowance cannot be carried forward to future years.
There are several exemptions that you might want to utilise before the end of the tax year:
- The annual exemption. You can give away a total of £3,000 worth of gifts each tax year without them being added to the value of your estate. It can be given to one person, or you can split the £3,000 between several people. You can carry any unused annual exemption forward to the next tax year, but only for that one year.
- Small gift allowance. You can give away as many gifts of up to £250 per person as you want each tax year, provided you have not used another allowance on the same person.
- Gifts for weddings. You can gift £5,000 to a child, £2,500 to a grandchild or great-grandchild, or £1,000 to any other person. The gift must be given ahead of the marriage or civil partnership, but the allowance is only granted if it actually happens!
- Normal expenditure out of income. You can make regular payments to help with another person’s living costs. There’s no limit, so long as you can afford the payments after meeting your usual living costs and you pay from regular monthly income.
There are many opportunities to reduce inheritance tax liabilities and we will be discussing these later in the year.
We hope you’ve found this information useful, but if there’s anything you want to discuss in more detail, do give us a call.