Top up your tax allowances before the new financial year

by Iain Mason

We’re well into February now, so it really isn’t that long until the new tax year starts on April 6.

This means that now is a good time to look at some of the available tax allowances, and top them up for the current 2018/19 accounting year.

Top up your ISA

The current Individual Savings Account – or ISA – allowance is £20,000 for 2018/19 (frozen from the previous year), which can be spread across the four types of ISA: a cash ISA, an investment ISA, an innovative finance ISA, and a lifetime ISA. Any remaining allowance not used by April 5 cannot be carried over – so it’s a case of either use it or lose it.

The ISA allowance for 2019/20 will remain at £20,000. The threshold for how much can be paid into junior ISAs, however, is increasing in 2019/20 to £4,368 (up from £4,260 in 2018/19).

Maximise your pension contributions

The current annual pension contributions limit remains at £40,000. In addition, unused relief from the previous three tax years may be used once you have paid in the maximum £40,000 limit for this financial year.

Pension savings qualify for higher rate tax relief and may help to reduce your payments on account, so if you are able to make more payments into your pension, now would be the time.

For high earners the limit can be reduced depending on total income and careful thought is needed if you fall into this category.

Make the most of Capital Gains Tax allowances

The current Capital Gains Tax allowance is £11,700 – this is how much gain can be made from selling assets before paying tax. In 2019/20, this is going up to £12,000.

If you do not use this allowance you lose it as it cannot be carried forward to the next tax year.

If you separated permanently from your spouse during this tax year, and assets need to be transferred between you, it might pay to do so before April 5. This is because assets passing between spouses are exempt from Capital Gains Tax during the financial year that the permanent separation took place.

Other allowances that could help reduce your tax burden

There are a number of other allowances that, if they apply to you, will also help reduce the amount of tax you pay. These include:

• Tax-free savings: everybody is entitled to £1,000 tax free savings. Depending on your income, you could be entitled to up to a further £5,000 savings starter rate.
• £1,250 marriage allowance: those who are married or in a civil partnership may benefit from marriage allowance. To be eligible, one partner must be earning less than the personal allowance (currently £11,850 and rising to £12,500 in 2019/20), and the other partner must be a basic-rate taxpayer.
• £2,000 dividend allowance: if you have invested in company shares, you might earn dividends as part of your income. If you earn more than £2,000 from this income, you’ll be taxed based on your income tax rate. The dividend allowance will remain be unchanged for 2019/20.

End of year tax planning is an important part of managing your tax affairs and minimising your tax liability. If you’d like any help with accounting or taxation issues, please get in touch with the team at Optimum Professional Services.