Are you making the most of the tax reliefs available to you? Do you know which opportunities you could benefit from? With the end of the 2019/20 tax year fast approaching, we share our recommendations you should consider before 6 April 2020 to improve your tax efficiency when it comes to your personal finances.
Use your pension pot
There are a few ways in which you can make savvy use of your pension contributions to help improve your tax efficiency:
Currently, the annual allowance – the amount that you and your employer can contribute while receiving tax relief to your pension each year – is dependent on your income and capped at £40,000. To make more contributions than your annual allowance allows, you could be eligible to use the carry forward rule. This rule allows you to use any annual allowance that you may not have used during the three previous tax years, as long as you were a member of a pension during that time.
As your National Insurance record indicates the amount of State Pension you’ll receive, you could also pay voluntary Class 3 National Insurance Contributions to improve your basic State Pension entitlement. This could help fill any gaps in your NI records that wouldn’t have been counted as ‘qualifying years’ towards your State Pension. You can check your NI record here.
Or, if you earn around £100,000 and are close to losing your personal tax-free personal allowance, you could make extra pension contributions to reduce your income to below the £100,000 limit. This is because the income on your tax return will be lowered to take this extra pension contribution into consideration.
Speak to our team of advisors to find out how you can make the best use of your pension pot.
Maximise your ISA allowance
Individually, you can save up to £20,000 a year tax-free with a cash ISA or stocks and shares ISA. If you are married or in a civil partnership, you can take advantage of your partner’s allowance too, so you can save up to £40,000 a year tax-free.
What you might not know is that 16 and 17 year-olds can have both a Junior ISA, which allows you to save up to £4,368 tax-free, and an adult cash ISA (although it’s worth noting that they can’t open a stocks and shares ISA until they are 18). This means that you could save up to £24,368 a year tax-free in your child’s name.
Just remember to check the terms and conditions of your ISA, as not all accounts will let you take money out and replace it within a year without affecting your allowance, should you need access throughout the year.
Capital Gains Tax changes
If you have sold an asset that’s increased in value, you’ll need to pay Capital Gains Tax (CGT) on your profits above your tax-free allowance. Individually, the annual allowance before CGT applies in 2019/20 is £12,000, but married couples and civil partners have a joint Annual Exempt Amount of £24,000. So, transferring an asset into your joint names before it’s sold to stay within your individual allowance could be a wise move.
Also, there are major changes coming into force in the new tax year that you should be aware of if you are planning to sell a residential property soon. Currently, the CGT due on a disposal is paid as part of the annual tax return cycle, but after 6 April 2020, the CGT will be due much sooner, within 30 days after completion.
If you’re selling a property, we recommend you contact our property tax team before you complete to avoid any unnecessary surprises.
Effective Inheritance Tax planning
Are you taking advantage of IHT exemptions? Review your inheritance tax plans before the end of the tax year and you might find that you can reduce your Inheritance Tax bill for the future.
One way of reducing the IHT payable is to give gifts to reduce the value of the part of your estate that is over the £325,000 threshold – as anything over this amount is subject to a 40% tax bill. There’s no Inheritance Tax to pay on gifts between spouses or civil partners, as long as they live in the UK permanently.
You can also give away £3,000 worth of gifts each tax year without them being added to the value of your estate, plus as many gifts of up to £250 per person as you want and £5,000 per child upon their marriage.
You could also consider setting up a trust. When you put assets into a trust, providing certain conditions are met, they no longer belong to you, which could help to reduce your Inheritance Tax bill. In any case, it’s important that your Will is kept up to date too, in line with your wishes. Speak to us to find out more about the trust options available to you.
Get specialist advice tailored to you
We know that your financial situation is as unique as you are, so to really make the most of the tax relief available to you, we advise that you speak to a professional, who can assess your individual circumstances and help formulate a plan that works for you for the 2020/21 tax year and the years ahead.
Here at TBL Accountants, we work with individuals, sole traders, landlords and business owners to make the most out of appropriate tax allowances and reliefs. Find out more about our tax planning services and how we can help you prepare for a successful tax-efficient future.
TBL Accountants are your local accountancy firm operating in Southend and across Essex. We specialise in a variety of services as personal, business, and charity accountants. Want to find out more? Get in touch with our team today.
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