Three tips to be tax-wise all year round

We’re into a new tax year so here are some tips to help you stay tax smart all year round.

A tax year runs from 6 April to 5 April, so effective tax planning needn’t be a mad March rush. It can be beneficial to review your tax opportunities now. Here are some ways of getting ahead. It isn’t exhaustive by any means, and if you would like advice on any of it, speak to your financial adviser.

1 Your ISA allowance: use it if you can! 

With a cash ISA or a stocks and shares ISA (or a combination of the two) you can save or invest up to £20,000 a year tax-free. To help you maximise the benefits of ISAs for you and your family, here are some things to consider when planning for the year ahead.

If you are in a position to, it makes sense for you and your spouse to take advantage of both ISA allowances, particularly if one of you has more financial resources than the other. That way, you can shelter up to £40,000 in ISAs in 2018/19.

Currently, 16- and 17-year-olds get two ISA allowances, as they’re able to open a Junior ISA (which for 2018/19 has a limit of £4,260) and an adult cash ISA. This means that you can put away up to £24,260 in your child’s name tax-free.

People aged 18-39 can open a Lifetime ISA, which entitles them to save up to £4,000 a year until they’re 50. The government will top up the savings by 25%, up to a maximum of £1,000 a year. However, the £4,000 counts towards the overall ISA allowance and there are likely to be penalties if you withdraw your money early.

Some cash and stocks and shares ISAs are flexible; meaning you can take money out and replace it within a tax year without it affecting your allowance. But not all ISAs are flexible, so check your terms and conditions.

2 Consider topping up your pension

Depending on how much you earn, between you and your employer, you may be able to pay up to £40,000 into your pension in a tax year (it’s called your annual allowance) before it becomes subject to tax. Take steps to maximise your pension pot if you can. Here are some things to consider.

If you don’t manage to make full use of your full pensions annual allowance this tax year, you can carry it forward for up to three years.

You can also boost your basic State Pension by paying voluntary Class 3 National Insurance Contributions (NICs).

3 Limiting inheritance tax

You can act at any time to help reduce a potential inheritance tax (IHT) bill when you’re no longer around. An IHT bill only applies if your estate is valued above £325,000**.

One way you can do this is by giving away up to £3,000 worth of gifts* (such as money or possessions) each tax year, so they are no longer included when the value of your estate (property, money and possessions) is calculated. This is known as the annual exemption.

The exemption applies to individuals – so as a couple you can make £6,000 worth of gifts. It can also be carried forward for one year so, if you didn’t do this last year, then you can, as a couple, make £12,000 worth of gifts before 6 April 2019. Who might the lucky recipients be?

Hopefully you can make use of one or more of these tax pointers in 2018/19 – and ideally before the end-of-tax-year dash!

Optimise the tax you pay

If you would like to find out how you may be able to optimise the amount of tax you pay get in touch now.

If you have any concerns about your pension savings get in touch now. 

Call 08000 85 85 90 or email appointments@lighthousefa.co.uk.

Sources: *https://www.gov.uk/income-tax-rates/income-over-100000 **https://www.gov.uk/inheritance-tax This is an abridged version of an article which first appeared on https://www.zurich.co.uk/magazine/six-things-to-do-before-tax-year-end.

The value of your investments, and the income you receive from them, can go down as well as up. A pension is a long-term investment and inflation will reduce how much your income is worth over the years. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation. Tax advice with no investment element is not regulated by the Financial Conduct Authority.