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Am I making the most of all tax allowances now?

18th March 2018

Q) Am I making the most of all tax allowances now?

A ) Don’t miss the chance to make the most of valuable tax-efficiencies and allowances while you are still earning income.

No matter what kind of taxpayer you are, you need to plan ahead. Once the tax year has already ended, you’ve lost some of the important allowances available to you to manage your tax affairs.

Here are our 6 tips for making the most out of your tax allowances:

1) Claim your personal allowance 

The basics: Whether you are working for a business or self-employed you will be able to earn up to £12,500 in income before having to pay any tax in the tax year 2019/20.

Top Tip 1: If you are self-employed you can also take into account a whole range of ways to reduce your taxable profit.

Top Tip 2: If you are married and your spouse or registered civil partner is a lower or even non-taxpayer, you could benefit from an additional perk. The Marriage Allowance lets you transfer £1,250 of your personal allowance to your husband, wife or civil partner – if they earn more than you. This can reduce their tax bill by £250. Don’t be one of the thousands of people who are currently missing out on this!

The person passing on their portion of personal allowance must have an income of less than £12,500 and the person it is passed to must have an income between £12,501 and £50,000.

2) Earn tax-free savings interest 

Basic rate tax payers can receive £1,000 of interest a year tax-free, (with high rate tax payers able to receive £500 in a tax year).

3) Maximise your Individual Savings Allowance (ISA)

The tax-efficient ISA allowance for the current tax year is £20,000 per person. Therefore, a married couple could put away £40,000 before the end of the tax year on 5 April. There is no Capital Gains Tax (CGT) and no tax on UK income, and also no need to declare this on your tax return. If you do not make use of your ISA allowances, they cannot be carried forward to the new tax year.

 

4) Don’t overlook pension contributions 

The rules around how much you can pay into a pension have become more complex. But the standard annual allowance is £40,000 per person in the current tax year. The standard allowance can be reduced if you earn above a certain limit or have taken pension benefits previously.

Basic-rate tax relief is currently 20%. So, if you contribute £80 a month, £100 will be invested automatically in your plan – that’s an additional £20 at no extra cost to you. If you’re a higher rate or additional-rate taxpayer, you can claim the extra relief from HMRC on your yearly tax return or by asking your tax office to adjust your tax code. The value of any tax relief depends on your individual circumstances. This is essentially free money, so don’t miss out.

5) Take advantage of your Capital Gains Tax allowance (CGT) 

Capital gains tax (CGT) is a tax on the increase in value of your possessions – such as a second home, antiques or shares – during the time you have owned them. Any tax is due when you dispose of them, usually by selling them or giving them away. Every individual has an annual CGT allowance which currently enables them to make gains on investments of up to £12,000 free of tax. Any gains in excess of the allowance are charged to CGT at either 10% or 20% (18% or 28% for residential property), depending on the individual’s other total taxable income in the year the gain arises. If unused, the allowance cannot be carried forward into the next tax year, so it is advisable to use this tax-free allowance each year in order to reduce the risk of incurring a significant CGT bill in subsequent years.

 

6) Take your pension to the max

Carry forward allows you to make use of any annual allowance that you may not have used during the three previous tax years, provided that you were a member of a registered pension scheme. This may be particularly useful if you are self-employed and your earnings change significantly each year, or if you’re looking to make large pension contributions.

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Gale and Phillipson Investment Services Ltd, Gale and Phillipson Advisory Services Ltd, Gale and Phillipson General Financial Services Ltd and Gale and Phillipson (SE London) Ltd are all authorised and regulated by the Financial Conduct Authority (Reference Numbers 431387, 142752, 195080, 195522).  Gale and Phillipson (Herts) Ltd and Gale and Phillipson Consulting Ltd are appointed representatives of Gale and Phillipson Advisory Services Ltd.  Gale and Phillipson (Surrey) Ltd is an appointed representative of Gale and Phillipson Investment Services Ltd. (Reference Numbers 615821, 811525, 703337). All companies trade under the name Gale and Phillipson and are registered in England and Wales numbers 05409822, 02232959, 03751076, 04077157, 08864945 and 04823391.  Registered office for all companies is Gallowfields House, Fairfield Way, Richmond, DL10 4TB.

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