Allowing for Allowances

There are just over 5 weeks until the end of the current 2018/19 tax year.

“So what?” I hear you ask. Well, after Friday 5th April 2019 the new 2019/20 tax year begins and you will lose the opportunity to utilise any tax efficient allowances, for good. Before you start panicking, fear not, you will still be able to use next year’s allowances, but the current ones are gone. Forever.

Here’s what you could be missing out on:

Investing into Individual Savings Allowances (ISAs)

ISAs are the ONLY true tax free investment available in the UK. You can invest up to £20,000 per tax year, per person and, if invested right (you need us for that) then you can grow this pot, tax free, to pay for lots of lovely things in decades to come. You can also stick ISAs into cash holdings, usually with your bank. But, as referred to in this previous blog, unless you’re using a cash ISA to save for an expense which is just round the corner, using cash ISAs for the long term is a bit daft.

Pension Contributions

Ahhh Pensions, exciting huh? In short, pensions are a great tax-saving investment AND they really help you with great investor behaviours. You can put a maximum of £40,000, or 100% of your annual salary if less, into a pension this tax year, all with tax relief at your marginal rate (FREE MONEY). Plus, you cannot touch them until you’re 58 (applies to most of you on our mailing list). This will ensure you have good investor behaviour as you can allow the pot to grow over the longer term, which is exactly what you want.

Giving away to others

This is a two fold approach to consider.

Firstly - Charitable Donations - did you make any this year? Not got round to it yet? Well, do it before the 6th April and you can claim Gift Aid, which is a tax relief on your donations. If you’re a higher or additional rate taxpayer (40% or 45%) then you can claim back the difference between the tax on your donation and what the charity got back, when you do your self assessment tax return next year.

Secondly - Inheritance Tax - most of our clients are too young to have a proper inheritance tax plan. That said, many of our clients already have more money than they are ever going to need. Gifting money away before you die is a great way to reduce your estate and avoid the government taxing it at 40%. A quick win before 6th April is to utilise your £3,000 gift allowance, which falls immediately outside of your estate. Didn’t gift anything last year? Well, good news is that you can carry forward a further £3,000 from the previous year. If you act now, you can get £6,000 per person, outside of your estate.

Capital Gains Tax (CGT)

If you make a tidy profit on most kinds of investments, including buy-to-let gaffs, or investment portfolios, then you may need to pay CGT on anything between 10 to 28%. However, we each get £11,700 of tax free CGT allowance, meaning if I sold a house this year at a £10k profit, I don’t pay squat to HMRC. However, come 6th April, this years CGT allowance will be lost. Is there anything that you could make a profit on now and save yourself tax later down the line? 

Obviously there are a lot more complexities to these and other UK financial regulated allowances but this gives you a gist of the basics.

Holla at us if you have any questions about unused allowances and which ones are the best for YOU to utilise.

Oh, and no reference or meaning at all to Lloyd Christmas (from Dumb & Dumber) in the photo, apart from the film being a classic, this photo always makes me laugh and I needed to lighten the load of the heavy technical subject this week.


Alfie Mullan, February 2019

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