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With only a couple of months to go in this financial year, it’s a good time to take action to maximise your tax allowances for the year. It doesn’t matter whether you’re in the lower or higher rate tax band, a business owner or an employee, married or single – there could be things you haven’t yet done. Our independent financial advisers have put their collective knowledge together to come up with the main ways you can save on tax. For more personalised advice, get in touch with us at www.plutuswealth.com at any time.
Everyone has an annual pension allowance. This is the amount of money that is eligible for tax relief from the government. For 2019-2020 this is £40,000 which means that you can put up to that amount into a personal or workplace pension and benefit from the available tax relief. If you can afford to make further pension contributions this year and have not yet reached that threshold (or the lifetime allowance of £1,055,000), then now is a good time to do it.
No, we are not proposing that you give it up entirely! However, if there is an option to take an employer pension contribution in lieu of a bonus and you have not reached your £40,000 pension limit for the year, it’s worth considering. While you may not get an immediate financial boost to your bank account, your pension will benefit from both the additional funds and the associated tax relief. Plus, you will not be taxed on the additional income which for many can be the difference between tax bands this close to the end of the year.
If you have an ISA account but have not utilised it to its maximum, it may be worth doing. Not only are your savings not subject to income tax, but they are protected from capital gains tax as well. You can only benefit from the tax relief in any particular year, so delaying until April 2020 will mean you lose out on the benefits for the current tax year.
A quirk in the tax laws means that if you earn between £100,000 and £125,000 you could be losing out on your personal allowance. In turn, this means that you could be paying up to 60% in income tax. If this is the case, making an additional contribution to your pension will reduce your taxable income, potentially reinstating your personal allowance.
Similarly, if you are claiming Child Benefit but have an income that is above £60,000 the rates at which you are taxed mean that you effectively lose the benefit. Making a pension contribution to reduce your taxable income to £50,000 will reinstate the Child Benefit and reap rewards in the form of pension tax relief.
Investing your money in a programme such as the Enterprise Investment Scheme (EIS) or Venture Capital Trust (VCT) could bring tax benefits. While HRMC has reduced the number of companies that qualify for EIS investment, it is still available for those seeking to help start-ups to raise funds.
There are risks and rewards, of course. The risks can be high, given investment is into start-ups and unlisted companies which, by definition, are a greater investment risk. However, the reward is in the form of tax relief up of to 30%. The maximum you can invest in any year is £1 million, giving a potential saving of £300,000 in income tax.
If you have the option to free shares or have the right to buy them at a preferential rate through a government scheme, they will be exempt from tax and National Insurance for the value of the shares. You may have to pay capital gains tax when you come to sell them, so this is something to be factor into your decision.
There is a personal allowance for capital gains tax and for this year it is £12,000. This applies to certain investments, including shares, second homes, art or antiques. If you are married or in a civil partnership with joint assets, that allowance is doubled to £24,000. If your shares are held in an ISA, then you are not taxed on them when you sell. Another option to help reduce your capital gains tax burden is to transfer the assets to your spouse or civil partner. If they are in a lower tax income bracket the amount of tax paid will be lower as well.
Need some help to navigate through tax requirements? Our Plutus Wealth team of independent financial advisers can help you make the most of your allowances by taking a personalised look at your assets and income sources. Call us on 020 7871 5200 or email us at firstname.lastname@example.org as soon as possible so that we can help you maximise your money.