Tax is never a one-size-fits-all approach: each taxpayer and each year will be
different. And with the new tax year this is a perfect time to carry out a tax health
check and implement any planning opportunities
There are a number of valuable allowances reliefs. These opportunities include, but
are not limited to, these four important areas of tax planning that should be considered.
We’ve summarised these allowances below and suggest that, if appropriate to your particular
situation, these areas should be reviewed before 5 April 2021. We’ve provided our top tax tips
to help you save time and money on your taxes:
Take your ISA contributions to the max. The term ISA stands for ‘Individual Savings Account’ and allows you to save tax-efficiently
into a cash savings or investment account.
With a Cash ISA or a Stocks & Shares ISA (or a combination of the two), you can save or invest
up to £20,000 a year tax-efficiently. Your ISA allowance doesn’t roll over into a subsequent tax
year, so if you don’t use it, you’ll lose out forever. If you are in a position to, it may make sense for you and your spouse to take advantage
of each other’s ISA allowance, particularly if one of you has more financial resources
than the other. That way, you can save (in the case of Cash ISAs) or invest (in the case
of Stocks & Shares ISAs) up to £40,000 tax-efficiently in the current tax year.
Make the most of your pension tax reliefs
Now is also the time to check you are taking full advantage of your pension tax reliefs and
allowances. Normally, between you and your employer, you can contribute a maximum of
£40,000 into your pension in a tax year (called your ‘annual allowance’) before it becomes
subject to Income Tax. It’s important not to exceed this limit – which is set at either 100%
of your salary or £40,000 (whichever is lower). However, for high earners with a taxable
income of more than £150,000 per year, this is tapered downwards.
If you don’t manage to make full use of your £40,000 pensions annual allowance this tax year,
you can carry it forward for up to three years. For example, in the current 2019/20 tax year,
you could carry forward unused contributions from 2016/17, 2017/18 and 2018/19, but the
clock restarted on 6 April this year.
Everyone is entitled to a tax-free personal allowance. This is the amount of income you don’t
pay any Income Tax on, and for 2020/21 stands at £12,500. If your income is above £100,000,
the basic personal allowance is reduced by £1 for each £2 you earn over the £100,000 limit,
irrespective of your age.
However, you could get some of your allowance back by increasing your pension
contributions, as the income on your tax return will be lower to take your extra pension
contributions into account.
You can also increase your basic State Pension by making voluntary Class 3 National Insurance
Contributions (NICs).
