Flexing your body’s muscles regularly keeps them strong – we all know we need to use them or lose them.
It’s important to keep fit financially. Make sure you don’t lose valuable tax allowances as we approach the end of the tax year on 5 April 2022, as not all allowances can be carried forward. February and March are the perfect time to review the past fiscal year and plan for the next.
I’ve listed a few key allowances here so you can begin to see if you’re using them to the best advantage.
Click here if you’d like to arrange a personal review.
ISA Allowance
An ISA is an Individual Savings Account – it allows you to save or invest money in a tax-efficient way.
Flex your financial muscles and put your ISA allowance to work to maximise the potential returns you make on your money, by shielding it from income tax, tax on dividends and capital gains tax.
The personal ISA allowance is £20,000 in 2022. A married couple could invest up to £40,000 before 5 April 2022 and then a day or two later to use their 2022/2023 tax year’s allowance. This means you could invest £80,000 with no capital gains tax and no tax on UK income held within the ISA. ISAs don’t have to declared on your tax return, but like muscles that don’t get a good work out from time to time, if you don’t use your ISA allowance it can’t be carried forward and you’ll lose this valuable benefit.
The Annual Allowance for Pension Savings
Your pension is the beating heart of your financial future. Make sure it’s working hard to give you a brighter retirement.
The annual allowance is currently £40,000 for most people. This is the limit on how much money you can build up tax-free in your pension in any one tax year while still benefiting from tax relief. However, you can also only receive tax relief up to 100% of your earnings.
£40,000 is not the maximum pension contributions you can make – you can contribute more – but you wouldn’t get tax relief on contributions over the annual allowance.
If your taxable income is over £240,000 your annual allowance for the tax year is restricted and if you have accessed your pension benefits using flexi drawdown you’ll be limited to contributing up to the money purchase annual allowance (MPAA) of £4,000.
Remember, you can also carry forward any unused annual allowance from the previous three tax years, as long as you were a member of a registered pension scheme during those tax years.
Capital Gains Tax Allowance
Everyone has an annual capital gains tax (CGT) exemption which allows you to make tax-free gains of up to £12,300 in the 2021/22 tax year. This can’t be carried forward into the next tax year, so making use of your tax-free exemption each year could reduce the risk of incurring a significant CGT liability in the future.
Transfers between spouses and civil partners – where this is a genuine, outright gift – are exempt from CGT, effectively doubling the CGT annual exemption for married couples and civil partners to £24,600.
If you have assets that have made a capital loss, or your capital gains are greater than the exemptions, taking professional advice is so important. Get in touch today if you need more information.
Annual Gift Allowances
Is your estate likely to be liable to inheritance tax? If so, you may want to make use of the annual gift allowances. These allowances mean you can give away assets or cash up to a total of £3,000 in a tax year without it being added to the value of your estate for inheritance tax purposes.
In each tax year you can give as many gifts of up to £250 to as many individuals as you want (but not to anyone who has already received a gift of your whole £3,000 annual exemption). None of these gifts would be subject to inheritance tax.
Other gift allowances include:
- wedding gifts to certain family members,
- helping someone who is financially dependent on you with their living costs and,
- gifts from your surplus income.
Other Allowances
Other allowances that may be relevant to your personal circumstances include:
- using your spouse’s personal allowance,
- saving into a pension or JISA for your children or grandchildren,
- investments in an Enterprise Investment Scheme (EIS),
- Venture Capital Trusts (VCT) and,
- the Seed Enterprise Investment Scheme (SEIS). EIS investments offer an Income Tax credit and CGT deferral.
Use it or lose it! It’s important to act now.
If you need financial planning advice, click HERE to book an initial chat with me.
The information in this article is for your general information and use and is not intended to address your personal circumstances. The information we provide here does not constitute any form of advice or recommendation and is not intended to be relied upon in making any investment decisions. Bear in mind that tax rules can change, and your individual circumstances will affect how changes might affect you. We recommend you seek appropriate independent advice before making any financial decisions.
