As we start a New Year it is unusual to be thinking about a year-end. However, the tax year is coming to a close in only a few weeks.
So now is a good opportunity to remind you about a few important allowances that are available to you and your family.
In some instances, they ‘rollover’ but some are on a ‘use it or lose it’ basis, so it’s important to catch up with your Kellands adviser if you are unsure whether you have used all the allowances available to you.
A summary of some of the valuable allowances that are available is shown below.
· ISA allowance – An ISA allowance of £20,000 is available in the current tax year and if unused it cannot be carried forward to subsequent tax years. Just a reminder, an ISA is free of income tax and capital gains tax.
With interest rates at very low levels, it may be a good time to explore alternative investment options to cash-based investments.
You also have the ability to transfer a Cash ISA to a Stocks Shares ISA if suitable for your circumstances. If the transfer is completed correctly, you will retain the tax-efficient ISA status.
· Junior ISA allowance – The younger members of your family also have an ISA allowance of £9,000 available. It’s a fantastic way to save tax-efficiently for their future. A Junior ISA is also free of income tax and capital gains tax.
Again, you cannot carry over any unused ISA subscription allowance to a new tax year.
· Pension contributions – The annual allowance is £40,000 gross in the current tax year.
It should be noted, under certain circumstances, you can ‘carry forward’ unused allowances from the previous three tax years. This can provide business owners and high earners the opportunity to maximise the tax relief available to them.
· Junior Pensions – Another valuable allowance that is available for the younger generation.
A Junior pension is available for under 18’s and the maximum annual contribution is £2,880 net. The contribution will receive tax relief meaning the actual amount invested is £3,600 gross.
Whilst access is limited to retirement age, it does give younger family members an early head start to their retirement planning.
· Capital Gains Tax (CGT) Allowance – If you hold assets outside of an ISA or pension, any sales or disposals may be subject to CGT.
Where possible, it’s important to make use of the annual CGT exemption, which is £12,300 for the 2020/21 tax year, to help mitigate any future CGT liability that may arise.
· Gift allowance – You can give away £3,000 worth of gifts each tax year without them being added to the value of your estate (for inheritance tax purposes).
This is known as your 'annual exemption'. You can carry any unused annual exemption forward to the next year - but only for one year.
It’s important to seek advice in the first instance to ensure you are following the financial plan that has been agreed with your financial planner.
Working out your entitlements and tax liabilities can also be a complex matter, and your Kellands financial planner will be able to guide you through this process.
As always, we are available to answers any questions you may have so please do not hesitate to contact us.
This article was written by Matt Hodges, Chartered Financial Planner, Kellands
This article should be treated as a general guide only and is not intended either to be a comprehensive statement of the law or specific tax planning advice. No liability is accepted for the opinions it contains, or for any errors or omissions. To discuss your tax planning options and for tax planning advice, contact Kellands.