Although the tax year-end is not until 5 April, between now and 5 April, you have the opportunity to save some tax with some careful planning.
Here are our top tips on how to best utilise your allowances before the end of the tax year.
Top up your pension pot
The standard annual pension allowance is £40,000 per person in the current tax year. This is reduced if your income exceeds certain limits or you have taken an income from pensions using Flexi-access drawdown.
However, if you are a higher-rate or additional rate taxpayer, you can claim the extra tax relief. You can also carry forward any unused annual allowance from the three previous tax years, so long as you were a member of a registered pension scheme during the years you wish to claim relief for. If you have not used up your allowance, you should consider doing so.
Use your Individual Savings Account (ISA) allowance
The tax-efficient ISA allowance for the current tax year is £20,000 per person. Therefore, a married couple can invest £40,000 before the end of the tax year. ISAs are exempt from Capital Gains Tax (CGT) and income tax, so there is no need to declare them on your tax return. If you do not make use of your ISA allowance, it cannot be carried forward, so use or lose it!
Capital Gains Tax (CGT) allowances
Individuals have an annual CGT allowance that currently enables them to make gains on investments of up to £12,300 free of tax. Any gains over the allowance are charged to CGT at either 10% or 20%, depending on the individual’s other total taxable income in the year the gain arises. Married couples may be able to use each other’s allowances by transferring assets before they are sold. Higher rates are due on the disposal of certain residential property.
Additional rate taxpayers
If you earn £100,000 or more, your tax-free personal allowance falls by £1 for every £2 you earn over £100,000. Therefore, if you earn £125,000 or more, you will not receive a tax-free personal allowance at all. The additional rate income tax (45%) is also charged on earnings of over £150,000. Pension contributions and moving investments to a lower-rate tax-paying spouse could reduce this liability.
Utilise your spouse’s personal allowance
If your spouse is a lower or non-taxpayer and you have income-producing assets (for example, buy-to-let property or even saving accounts), you could put these in their name to lower your overall Income Tax liability. Assets can be passed between spouses without any CGT liabilities.
Do you need help with your year-end tax planning?