April 5th is the end of the tax year. It’s the date when certain tax-free allowances run out. With some careful end of tax year planning, you can save tax and make the most of your money.
End of tax year planning – using your ISA allowance
You can pay up to £20,000 into an ISA this year (2019-20). You can pay the whole lot into a cash ISA or put it all into a stocks and shares ISA. If you prefer, you can split it as you wish between the two. A cash ISA pays interest tax free and there’s no capital gains tax to pay when you come to cash your stocks and shares ISA in.
SAVVY TIP: Since April 6th 2016, you’ve had a £1,000 tax-free savings allowance. This means you can earn up to £1,000 a year in interest free of tax if you’re a basic rate taxpayer and £500 a year if you’re a higher rate taxpayer. The advantage of a cash ISA over leaving your money in an ordinary savings account is that we don’t know how long the savings allowance will last for. Cash ISAs have been around for a long time so it’s less likely that a government would tinker with them.
Don’t be tempted to put money into a stocks and shares ISA unless you’re happy with the amount of risk that you’ll be taking on. There’s no point in saving tax if you’re going to panic every time the stock market falls. But if you can leave your money invested for – ideally – ten years, you may do better with a stocks and shares ISA than if you leave your money in cash. There’s more about Understanding how stocks and shares ISAs work elsewhere in this section.
Search the best buy tables. If you want to find a cash ISA that pays a top rate of interest, check out comparison sites and best buy tables. Try SavvyWoman’s best buy tables, provided by SavingsChampion, and comparison sites such as Moneysupermarket.com and Moneyfacts.
SAVVY TIP: If you don’t know whether or not to lock your money away and you have money in ISAs from previous tax years, why not split your ISA savings so you have some in an easy access ISA and some in a fixed rate cash ISA account? Don’t do this if you’ll need access to your money within the term of the fixed rate ISA.
Save money into your pension
In the tax year 2019-20 you can save up to £40,000 into your pension (or up to 100% of your earnings, whichever is lower) and get tax relief. This is effectively a contribution by the government in line with your tax band. So, for example, if you pay tax at 20% a £100 contribution will only cost you £80. And if you pay tax at 40%, a £100 contribution will only cost you £60.
SAVVY TIP: The £40,000 limit sounds like a straightforward amount. But it’s much more complicated if you’re paying into a final salary pension scheme. Read more about this in the article entitled You can pay up to £40,000 a year into your pension.
You can ‘carry over’ your pensions allowance for three years. That means if, for example, you pay in less than £40,000 into your pension in 2018-19 and could afford to pay in more than £40,000 in 2019-20, you could pay in the maximum for that tax year and another £40,000 minus whatever you’d already contributed in 2018-19.
Use your inheritance tax allowances
Many people resent the idea of paying inheritance tax (IHT). But there are ways you can reduce your potential IHT bill — and that’s by using your allowances. These include:
1. Being able to give away £3,000. You can give up to £3,000 away every tax year, either to one person or split between several.
SAVVY TIP: If your property and money is worth less than the inheritance tax threshold (currently £325,000 for an individual and effectively £650,000 for a married couple or civil partners) you can give away as much as you want without having to pay inheritance tax. The £3,000 limit only applies if you plan to leave more than £325,000 (in tax year 2019 -20) in money and property etc when you die.
2. Being able to give away £250. You can give up to £250 to whoever you want. And you can give up to £250 each to lots of different people. But you can’t give more than one gift of £250 to the same person in the same tax year.
3. Being able to give away money or assets to your husband or civil partner. Wives and husbands can give away assets – such as money, property and savings – without incurring an IHT liability.
SAVVY TIP: Don’t focus on saving inheritance tax at the expense of losing control of your money. Or leaving yourself without enough to live on.
Use your capital gains tax allowance
You pay capital gains tax when you sell investments (shares, funds but not stocks and shares ISAs), property or valuables such as antiques, jewellery and wine, if they’re sold for more than £6,000. You also get a capital gains tax (CGT) allowance. In the tax year 2019 – 20, it’s £12,000. That means that you can make profit of up to £12,000 once any associated costs and charges have been taken into account. And you won’t have to pay capital gains tax.
If you have investments, such as shares or investment funds that aren’t held within an ISA, you can sell some of your shares (enough to generate a profit of £12,000). You only need to sell enough of your shares to generate this profit. So it’s worth taking some advice from a financial adviser or planner or stockbroker about how much to sell and which investments you should sell.
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