The year so far has not been short on big tax announcements. The allowance freezes of the March Budget were followed by the suspension of the State Pension triple lock and the announcement of the Health and Social Care Levy.
As the chancellor’s third budget looms, it’s impossible to say what further changes might be on the horizon. What is certain, though, is that with interest rates low, inflation high, and the wider economy still feeling the effects of the pandemic, taking control of your finances is crucial.
Making the most of the tax thresholds and allowances that apply to you is the best way to make the most of your money.
Now, more than ever, it pays to start thinking about the next tax year early. Here’s why.
1. Some allowances can be carried forward, so check your tax history well in advance and decide what you can afford
Pensions are tax-efficient but only if you make the most of the benefits they offer. This includes tax relief on contributions, as well as allowances on the amount you can pay in.
Your Annual Allowance states how much you can contribute to your pensions while still receiving tax relief.
The Annual Allowance for 2021/22 stands at £40,000 and any unused allowance can be carried forward for up to three years. Depending on the allowance you have used in previous years, your allowable contribution this year could be high. Calculating your unused allowance early gives you more time to spread payments, making the most of it without leaving yourself out of pocket in the short term.
Remember though, that other factors – including your level of earnings and how you choose to access any pensions benefits you take – could lower this amount.
Make the most of the allowance that applies to you and read five scary pension mistakes to avoid this Halloween for more ways to make the most of your pension before the end of the tax year.
2. Your ISA Allowance can’t be carried forward so if you don’t use it, you lose it
While April might usually mean the last-minute scramble to use up all of your allowances, planning early makes for a much less stressful experience.
It gives you time to properly budget for the amount you will pay, while also limiting the possibility of making mistakes, whether through not paying enough or oversubscribing.
Arguably, this is even more important for those products whose allowances can’t be carried over. One such allowance is your ISA Allowance, which stands at £20,000 for the 2021/22 tax year. If you don’t use it in any given tax year, you lose it.
Take the time now to check how much you have paid so far and be sure to make full use of it before tax year end if you can afford to. This might mean making monthly payments so the longer you have to make these the better.
3. Make the most of gifting in case Inheritance Tax rules change
With both the nil-rate band (£325,000) and the residence nil-rate band (£175,000) frozen until at least 2026, rising house and share prices could mean you attract an IHT liability in the future. The Autumn Budget could bring yet more changes so make the most of the rules as they stand now.
The annual exemption means that you can gift up to £3,000 during the 2021/22 tax year, thereby removing the gifted amount from the value of your estate. If you have a partner, you both have a £3,000 limit and any unused amount from last year can be carried forward.
If you and your partner both have an unused exemption from last year, you could gift up to £12,000 before April.
Get in touch
As the government continues to claw back its coronavirus borrowing, while supporting the economic recovery and funding the social care crisis, more tax and allowance changes may be imminent.
If you would like to discuss making sure you are ready for the end of the tax year, whatever the next few months bring, we are here to help. Please email hello@globeifa.co.uk or call us on 020 8891 0711 to discuss how Globe IFA’s expert financial advisors can help you.
Please note
This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.
