Have you utilised the full range of tax advantages
Each tax year runs from 6 April to 5 April, and with it brings a host of new opportunities to optimise the full range of tax advantages and investment allowances available. With the 2018/19 tax year swiftly coming to an end, many people use this time of year to make sure that they ‘lock-in’ the current financial year’s tax breaks before the door closes.
As a result, we’ve made a list of some of the main opportunities to consider, however please note that you must act now if you wish to take advantage of the opportunities available for this current tax year:
1. Use your £20,000 ISA allowance: Utilise your tax-efficient ISA allowance. The allowance for 2018/19 is £20,000 per person, whilst the Junior ISA allowance is now £4,260 for children under 18. Remember you cannot carry this forward. It’s worth reviewing the substantial tax breaks that ISAs can offer. To start, you don’t pay income tax or capital gains tax on the returns from an ISA. In addition, you are not required to include ISAs in your tax return, nor any income or growth from them. Finally, your money can continue to benefit from these tax advantages as long as it remains invested in an ISA
2. Consider topping up your pension to maximise contributions amount and tax relief: Take full advantage of increasing pension contributions by utilising the annual allowance, which is £40,000 (tapered if you earn over £150,000) or the value of your whole earnings – whichever is lower. Unused annual allowances can be carried forward from the previous three tax years. You may even wish to consider contributing up to £2,880 towards a pension for your non-earning spouse or children. The Government will add £720 on top – for free
3. Reduce any potential Inheritance Tax (IHT) liabilities: You can act at any time to help reduce a potential Inheritance Tax bill when you’re no longer around. Make use of the Inheritance Tax annual exemption that allows you to give away £3,000 worth of gifts outside of your estate. If unused, the exemption can be carried forward one year
4. Be clever with your Capital Gains Tax (CGT): Utilise the capital gains annual exemption of £11,700 (2018/19) to realise gains tax-free, with one of the most popular options, ‘Bed and ISA’ allowing you the opportunity to disinvest money from your investment account, up to the CGT limit, and invest this into an ISA where you can benefit from tax free gains.
Retirement Planning and ISA
Why is building up a pot of money in an ISA a wise move for when you retire? As you already know, the new pension freedoms mean you may have more options on how you can access your pension, however, you will pay income tax at your marginal rate on any withdrawals you make from your pension, after tax-free cash. So, drawing a smaller income from your pension and topping it up with income from your tax-efficient ISA could help reduce the tax you pay when you retire.
It is worth noting that this document should simply be used as a guide for some of the main tax-year planning opportunities available. The specific options available to you will depend on your individual circumstances. Remember that the value of investments can go down as well as up and you may get back less than you invest. Tax rules may change in the future. Tax treatment depends on your personal circumstances.