As the end of the tax year approaches, it’s a great time to review your personal financial position and look for more efficient ways of managing your income. Here are our top tax tips for individuals as we approach the end of the tax year on 5th April 2020. If you want to know more, give the tax team at HB Accountants a call.
Top up your pension
Normally, you and your employer can pay a maximum of £40,000 into your pension pot over a tax year before it becomes subject to tax. This is known as your personal allowance. However, you can maximise your pension pot each year by paying as much into your pension as is practical whilst keeping under the £40,000 limit. Remember that you can carry forward any unused allowance for up to three years.
Always take advice before you access your pension early as there may be serious tax implications and bear in mind that you may be liable for tax on any benefits if your total pension savings exceed the lifetime allowance of £1.055 million.
Save into an ISA
You can save up to £20,000 a year tax free in a cash ISA or a stocks and shares ISA (or a combination of the two), so consider opening an ISA for tax efficient savings that aren’t subject to income or capital gains tax for any growth or withdrawals.
If you are in a position to, it makes sense for you and your spouse to both take advantage of the ISA allowance, particularly if one of you has more financial resources than the other. That way, you can save up to £40,000 between you, tax free.
If you’re under 40, open a Lifetime ISA, which entitles you to save up to £4,000 a year until you’re 50. The government will top up the savings in the lifetime ISA by 25%, up to a maximum of £1,000 a year.
Compare this with saving through other forms such as bank accounts where a basic-rate taxpayer can only receive up to £1,000 savings income tax free and a higher-rate taxpayer only £500. There is no relief for additional-rate (45%) taxpayers.
Make a gift to your family
If your estate is worth over £325,000 then consider gifting money or possessions to your family each tax year as a means of reducing your Inheritance Tax (IHT) bill.
You can gift up to £3,000 each year – or £6,000 as a couple – free from IHT and removing this amount from the value of your estate (property, money and possessions). This annual exemption can also be carried forward for one year so, if you didn’t do this last year (2018/19), then you can, as a couple, make up to £12,000 worth of gifts free of IHT before 6 April 2020.
Also consider reviewing your will with your accountant or solicitor, to ensure that it effectively reflects your wishes. Also review your investment portfolio to ensure you are considering inheritance tax-friendly options.
Be Capital Gains Tax aware
Capital gains tax is a tax on any profit you make when you sell something such as a second home or an investment portfolio. Individuals have an annual allowance of £12,000 to use before this tax applies but be aware that it’s a use it or lose it allowance.
It’s worth remembering the allowance is for individuals, so between you and your spouse, there is a joint allowance of £24,000 for 2019/20. Consider transferring an asset into your joint names so you both stay within your individual allowances. If you are not married, be aware that you may be liable for Capital Gains Tax (CGT) so talk to your financial advisor or accountant before transferring any assets.
You can also offset any gains from the sale of one asset with any losses incurred from the sale of another. You also may wish to defer the sale of an asset into the following tax year to help manage any tax payable.
Entrepreneurs’ Relief reduces capital gains tax from 20% to 10% on the disposal of certain business assets. The number of shareholders that are entitled to submit a claim was reduced by the 2018/2019 Finance Bill and making it more complex to determine who can claim. Speak to your accountant for advice and guidance.
Personal Allowance – a reminder
Your personal allowance is £12,500 for the 2019/2020 tax year. Non-savings and non-dividend income over this amount is taxed between 20-45%. If you earn between £100,000-£125,000, the personal allowance reduces by £1 for every £2 you earn, ultimately giving a marginal tax rate of 60%.
You can transfer £1,250 of your personal allowance to your spouse or civil partner if neither of you pay income tax at the higher rate. This is known as the marriage allowance.
For specific advice about your personal finances, talk to a tax expert as everyone’s situation is different. For great advice, contact Amy firstname.lastname@example.org in our tax department who can help you.
The information contained above is for general guidance purposes only. Whilst every effort has been made to ensure the contents are accurate, please note that each individual has different circumstances and it is essential that you seek appropriate professional advice before you act on any of the information contained herein. HB Accountants can accept no liability for any errors or omission or for any person acting on or refraining from acting on the information provided above.