Use those tax allowances if you can
There are a number of generous tax allowances available. These are a cornerstone of financial planning because the less you pay in tax, the more money you have for you and your future. Most tax allowances don’t carry over from one tax year to the next so you tend to lose them if you don’t use them. And they’re not set in stone – the Government can change them. In fact, it’s widely expected that changes are on the way to help pay for the cost of Covid, which is why many people feel there is an urgency to use them if possible.
- ISAs – savings in ISAs are free from Income Tax and Capital Gains Tax. The annual ISA allowance is £20,000 for adults and £9,000 for children.
Pensions – you get tax relief on pension contributions up to your annual allowance. Anything invested is topped up by 20% automatically. Higher-rate and additional-rate taxpayers can claim back another 20% and 25% respectively through their tax returns. Usually you can pay as much as you earn each year into your pension, up to a maximum of £40,000. This is your annual allowance. The allowance reduces for people with an adjusted annual income of £240,000 or more, down to a minimum of £4,000. This is known as the tapered annual allowance.
Don’t overlook the:
Personal Savings Allowance that provides a tax-free allowance for interest: £1,000 for basic-rate taxpayers and £500 for higher-rate taxpayers
£2,000 tax-free allowance for dividend income that all taxpayers are eligible for
Incredibly useful £12,300 Capital Gains Tax allowance
Host of tax-free financial gift allowances if you’re in a position to give money away
Review your existing investments
Are your existing investments working as hard for you as they can? Do you have the right asset allocation and level of risk for your personal circumstances? Our How we manage money guide explains the investment philosophy and process that underpins Tilney’s investment services. And if the time is right to enlist the support of a professional, you can find out more about our investment services and book a free consultation.
Make retirement plans
If you’re hurtling towards retirement, but haven’t got a plan in place yet, we’ve got a guide, Planning for retirement, that covers the important considerations. We also have an excellent video as part of our Tilney Events on Demand series that shows how a financial planner can use cashflow modelling to help you answer the question: can I afford to retire?
Is this the year to think about estate planning, financial gifts and Inheritance Tax? This is a huge and varied subject but our estate planning hub is here to help you find lots of relevant information.
Kick off the year with a financial MOT
If your finances are complicated or you’ve got big decisions to make, have you considered speaking to a financial planner?
Our team can help with everything from showing you whether you’ve got enough money for your future, to saving on Inheritance Tax or tax-efficient investing. They offer free initial consultations so why not kick off the new year by giving your plans and finances an MOT?
The value of an investment may go down as well as up, and you may get back less than you originally invested.
Prevailing tax rates and reliefs depend on your individual circumstances and are subject to change.
This article does not constitute personal advice. If you are in doubt as to the suitability of an investment please contact one of our advisers.
Issued by Tilney Financial Planning Limited and Tilney Investment Management Services Limited
This article was previously published on Tilney prior to the launch of Evelyn Partners.