As we approach the final few months of the 2020/21 tax year, now is the time to consider your tax position and review your finances. You should ensure that they are structured as efficiently as possible to minimise your tax liability.
We have put together the following tips to help you plan and prepare in advance:
1. Use your £20,000 ISA allowance
ISAs are great saving vehicles because any savings held within an ISA grow free of income tax, capital gains tax and dividend tax. Everyone has an ISA allowance of £20,000 in the 2020/21 tax year and if you do not use this allowance before the tax year end (05 April 2021), you will not be able to use it in future tax years.
2. Maximise your pension contributions
Pensions are also highly tax efficient where any assets held in a pension are not subject to capital gains tax, dividend tax or inheritance tax. In addition, when a UK taxpayer makes a pension contribution, they will receive tax relief. The more income tax you pay, the greater the tax relief on pension contributions.
There is a limit as to how much can be contributed into a pension while receiving tax relief. This limit has been reducing over the years for those whose income is above a certain level. Although it may be possible to carry back unused allowances from the last three tax years, to boost your pension.
3. Use your Capital Gains Tax (CGT) allowance of £12,300
CGT is a type of tax that you pay when you sell certain assets and make a profit. Everyone has a CGT allowance of £12,300 in this tax year. This means that you can sell investments, property or other assets without having to pay any tax on the first £12,300 of profits. If your gains are higher than that, you will be subject to CGT which could be as high as 28%.
You can utilise your CGT allowance by selling assets in two tranches: first tranche this tax year and the second tranche the next tax year.
4. Gift money away using your £3,000 annual gift exemption
Inheritance tax (IHT) is a tax applied to your assets when you pass away. One way to reduce your potential IHT liability is by using your annual exemption by gifting £3,000 before the tax year end. If you did not use this exemption last year, you can gift a total of £6,000 in this tax year. Gifts can include money or possessions and the £3,000 limit applies per individual so couples can gift a total of £6,000 or £12,000 if they have not used their exemption last tax year.
5. Seek advice
Managing your finances can be difficult when there are a lot of moving parts. A financial planner can help you make the most of your allowances, reliefs and exceptions to ensure you do not pay any unnecessary tax.
How can we help?
At Lubbock Fine Wealth Management, we offer a no obligation initial meeting where we can discuss your needs and advise how we can help you achieve your goals and objectives. Get in touch with our Chartered Financial Planner, Görkem Gökyiğit (GorkemGokyigit@lfwm.co.uk), who would be happy to help you.