End of the tax year: make the most of your allowances
As one tax year draws to an end and another one begins, you’ll be keen to make sure you have taken advantage of any tax breaks and allowances before April 5th. Although the global economy may seem an uncertain place, this is one area where you can take control of your own financial future.
One of the first allowances to consider is your tax-free personal allowance, which is currently £11,500 per annum or £45,000 at the higher rate. These rates will rise to £11,850 and £46,350 respectively from April 2018, in line with the pledge to increase the thresholds to £12,500 and £50,000 by 2020. There is no specific action to be taken here but it is worth being aware of the rates. The Marriage Allowance is also increasing by £35 to £1,185 in the 2018/19 tax year. This allows married couples to lower their overall tax bill, if one of them earns less than the Personal Allowance.
You can, however, actively take steps to make sure you have maximised your ISA allowances. The limit was raised to £20,000 in the 2017/2018 tax year and will remain unchanged in the coming tax year. Any returns are protected from income tax and capital gains tax. You can invest your ISA allowance either in cash, investments or Innovative Finance ISAs, which invest in peer-to-peer lending, or you can put up to £4,000 of your allowance into the Lifetime ISA (LISA). This was launched last year to encourage people aged under 40 to save for a home or their retirement.
Make sure both you and your spouse or partner have used your allowance. Your children are also eligible for an ISA, with the limit for Junior ISAs and Child Trust funds being £4,128 currently and rising in line with inflation to £4,260 in April 2018. This then remains tax-free until their 18th birthday, when it gets converted into an adult ISA. None of these allowances can be carried over to the following year so it is a case of ‘use them or lose them’.
Capital Gains Tax allowance
Capital Gains Tax allowance is one allowance that is often overlooked. The amount for this annual allowance in the current tax year is £11,300, rising to £11,700 in April 2018. As both husband and wife have the allowance, there is scope for transferring assets between you in order to reduce your tax bill.
Pension allowance and contributions
Have you fully used your annual pension allowance? This is the limit on the amount that can be contributed to your pension each year, while still receiving tax relief. It’s based on your earnings for the year and is capped at £40,000. Make sure you’re making the most of any matching contributions from your employer too. Remember, any contributions you make will reduce your taxable income and have a direct effect on the eventual size of your retirement fund.
An area you can also consider is whether you have used your Inheritance Gifting exemption. You can give away £3,000 of gifts each tax year without them being added to the value of your estate.
If you would like any help on how to make the most of your tax planning, do get in touch.
The value of your investment may go down as well as up and you may not get back what you initially invested.
All tax allowances are based upon current legislation and may be subject to change in future years.
Craig Harrison is Managing Director for Creative Wealth Management, having joined Creative Benefit Solutions in 2008. He is among the highest qualified advisers in the country, holding the title of Chartered Financial Planner in addition to the Investment Management Certificate (IMC). When not working, Craig is an occasional runner and cyclist which helps combat his love of food, especially cheese and red wine!