Tax tips with AWM: Maximising your ISA allowance

Tax-Year-End (5 APRIL) is approaching FAST and its time to take full advantage of all those tax benefits and allowances, that not many people utilise.

This is Tip #3 of the blog series with the main topic of Pre-Tax-Year-End tax planning. If you missed Tip #1 and Tip #2 on Venture Capital Trusts and Enterprise Investment Schemes, check out the AWM blog.

These tips are to help make sure that you best utilise your Tax-Year-End options and this week we focus on Maximising Your Allowances*

Maximise Your ISA Allowance

The maximum you can contribute to an ISA this tax year is £20,000. This is a very tax-efficient investment vehicle so please contact us if you want to discuss making further contributions or finding out if you still have any allowance remaining. Remember that if you don’t use the allowance now, you will lose it!

As part of the £20,000 ISA allowance, it’s also possible to invest up to £4,000 in a lifetime ISA which receives an annual government bonus of up to £1,000 a year. Under-18s or those who wish to save on behalf of a minor can put up to £4,368 into a junior ISA.

Maximise Your Gifting Allowance

Everyone is able to gift £3,000 to someone and it will be immediately outside of your estate for inheritance tax. You can top this up to £6,000 if you didn’t use the allowance in the previous tax year too.

Top-Up Your Pension

Another way to reduce tax and at the same time boost your retirement pot is to make sure you use up your entire annual pension allowance, which is currently £40,000.

Questions you have about optimising your pension contributions:

Do you have unused allowances from previous tax years which expires soon and may be utilised?
Have you reviewed your pension contributions?
Should you pay more into your pension?
Are you aware of the potential inheritance tax benefits of maximising your pension fund?

Once you earn more than £150,000, your annual allowance starts to fall, known as the ‘tapered annual allowance’. The tapered allowance applies if your ‘adjusted income’ is more than £150,000. Adjusted income is your total taxable income – so salary, dividends, rental income, savings interest, plus employer contributions. If your total adjusted income is between £150,000 and £210,000, you lose £1 of annual allowance (starting at £40,000) for every £2 of adjusted income. Once your income reaches £210,000, you’ll be left with an annual allowance of £10,000.

If your total pension savings exceed the lifetime allowance of £1.055 million in 2019/20, you may be liable to tax when you draw benefits.

Capital Gains Allowance

Everyone has a Capital Gains Tax allowance of £12,000 in this tax year. You can deliberately create a gain on an investment to use the allowance, so that when the investment is finally encashed you may not have any Capital Gains Tax to pay.

*utilising these allowances are provider timeline dependent.