We may have had snow the last couple of weeks, but spring is just around the corner which means you only have a couple of months left to take full advantage of your tax free allowances. If you think it all sounds a bit boring, just remember by maximising your annual tax free allowances, you reduce your personal tax bill. And who doesn’t want to do that!
We take a look at 5 annual allowances which you should consider using up by 5th April 2019.
1. Maximise tax free savings with an ISA
If you have savings, then you really should have an ISA. Why? Because they allow you to save up to £20,000 a year, tax free. This means they are exempt from income tax, exempt from capital gains tax on the investment returns, and you won’t have to pay any tax if you withdraw any money.
Each year, your ISA allowance resets which means you can’t carry your ISA allowance over to the next tax year. So, if you haven’t invested the full £20,000 for this tax year, you’ve still a couple of months left to top it up.
And if you don’t have an ISA yet, seriously consider one. You can have a cash ISA, a stocks and shares ISA or split your allowance between both. You can also opt to invest through lump sums or regular payments. Take a look at this useful guide from HMRC on how ISAs work and how to open one.
2. Save tax and plan your child’s future with a Junior ISA
Junior ISAs are a great way of building a nest egg for your children while saving tax at the same time. They can be opened for children under 18 and this year’s annual tax free allowance is £4,260. A child can take control of a Junior ISA at 16, but won’t be able to withdraw the money until they turn 18.
3. Top up your state pension
If you have a shortfall in your National Insurance contributions, it’s well worth topping them up. You’ll be grateful when you start to draw your state pension. You can only top up NI contributions for the last 6 years, so if you have any shortfall from 2012/2013 you only have until the 5th April to sort it out.
4. Make extra pension contributions
For the tax year 2018/19, you can place up to £40,000 into a personal pension, tax-free. This helps reduce the earnings you get taxed on and in some cases can even bring your earnings down to another tax bracket.
And don’t forget, that pension allowances can be backdated for up to 3 years. You have to use this year’s allowance first, but can then claim previous years’ unused allowances. So, if you haven’t used all of 2015/16’s allowance yet, get going – as otherwise on 5th April, you’ll lose it.
Just remember, that if your income is between £150,000 and £210,000, you will lose £1 of annual allowance for every £2 of adjusted income. This is known as ‘tapered annual allowance’ and if you’re at all unsure, give us a call and we’ll be happy to help.
5. Use your annual gift allowances
Each year, you can give away assets or cash up to total of £3,000 without incurring Inheritance Tax. You can also use up any of last year’s unused allowance.
There is also a Small Gifts Allowance. This means you can give up to £250 to anyone each year without being subject to inheritance tax.
Want to know more?
While tax planning isn’t the most exciting thing, for anyone other than accountants, it is well worth it. After all, who doesn’t want to reduce their personal tax bill and save a bit of cash.
If you have any questions about any of these tax free allowances, just give us a call. We’d be happy to advise you.