There are just a few weeks to go before the end of the tax year on April 5, so now’s the perfect time to check you’ve made the most of the various annual allowances that may be available to you.
Here’s our rundown of some of the options you might want to consider taking advantage of over the next few weeks.
Have you used your ISA allowance?
This tax year (2021/22) you can put up to £20,000 into tax-efficient individual savings accounts (ISAs) and your returns will be free from tax. This is a ‘use it or lose it’ allowance, so if you don’t use it by April 5, it’ll be gone for good. You will, however, get a new £20,000 ISA allowance for the 2022/23 tax year when that begins on April 6.
You may put some or all your ISA allowance into a cash, stocks and shares or an Innovative Finance ISA which invests in peer-to-peer lending, or you can split it between these three types of ISA.
If you want to put your money into a cash ISA, keep an eye out for any short-term bonuses which may boost the rate temporarily. If you do choose an account which offers a bonus, you’ll need to make a note in your diary of when it ends so that you can transfer your savings at that point if better rates are available elsewhere. Learn more about how ISAs work in our article Everything you need to know about ISAs. You can find the current best cash ISA rates in our article Best cash ISA rates – which cash ISAs pay the most interest?
Give your pension a boost
Pension savers are generously rewarded by the taxman for saving for the future, so you may want to consider paying a bit extra into your pension before the end of the tax year to benefit from tax relief.
For example, if you’re a basic rate taxpayer and you pay £80 into your pension, HMRC will top this up to £100, and if you’re a higher or additional rate taxpayer, you’ll receive even more tax relief on your contributions, which you can claim back through your self-assessment tax return. Find out more in our article How pension tax relief works.
There’s always lots of speculation that the Chancellor might restrict pension tax relief, so if you’re considering paying into your pension you might want to think about acting sooner rather than later. Bear in mind that there’s a maximum amount you can pay into your pension each tax year. This tax year (2021/22) you can claim tax relief on pension contributions of up to £40,000 or 100% of your income, whichever is lower. Find out more in our guide How do pension allowances work?
If you have unused annual pension allowances in recent tax years, you may be able to use these this tax year under carry forward rules. Learn more about these in our guide Pension carry forward explained.
Even if you’re not currently earning, and if you can afford to, you can make pension contributions of up to £3,600 each tax year. You only have to pay in £2,880 and the State will top this up by £720.
Don’t forget your personal allowance
Your personal allowance is the amount of money you can earn in the 2021/22 tax year without paying tax. This tax year the personal allowance is £12,570, and it will remain at this level in the 2022/23 tax year.
If you’re married but only one of you is working, it can make sense to think about transferring savings accounts to the person who doesn’t work, so that you can keep your combined tax bills to a minimum. If you don’t make use of your personal allowance in any tax year, you can’t carry it forward to the next year.
There’s also the Marriage Allowance to consider. This entitles non-taxpayers to transfer up to 10% of their £12,570 personal allowance to a basic rate tax-paying spouse or civil partner. Claims can be backdated by four years, so married couples could claim up to £1,150 if they haven’t previously made full use of their allowance. Learn more about the Marriage Allowance and how to apply in our article on the Marriage Allowance explained.
Think about Inheritance Tax
Inheritance tax (IHT) is charged on the value of your assets above a certain threshold when you die. This threshold is currently £325,000 and will remain at this level in the 2022/23 tax year.
Tax rules enable you to gift up to £3,000 free of Inheritance Tax each tax year, called your ‘annual exemption’ and you can also make as many smaller individual financial gifts of up to £250 per person as you want. Learn more in our guide Six ways to reduce inheritance tax bills.
You can give away bigger lump sums, but you must live for at least seven years from the date you make the gift for it to be exempt from Inheritance Tax. Find out more in our articles Understanding Inheritance Tax and Inheritance tax: what are potentially exempt transfers.
Tax rules can be really complicated, so it’s a good idea to get professional financial advice to help you work out the best ways you might be able to use annual allowances to your advantage. You can find a local financial advisor on VouchedFor or Unbiased, or for more information, check out our guides on How to find the right financial advisor for you.
Do you plan to use any tax planning opportunities before the end of the tax year? If so, we’d love to hear from you. You can get in touch on the Rest Less Community forum or post a comment below.