The 2020/21 tax year ends on 5th April 2021, this is the deadline for topping up your ISAs in the current tax year.
For most of us, it's not something we need to think about, despite the 'use it or lose it' messaging that can be found floating around during this time of the year. However, for some, the end of the financial tax year is a great reason to review finances and make sure that you've taken advantage of all of the tax efficiencies available.
We're aiming to take the pressure out of ISA season. If you're unsure of whether it's something that needs to be on your radar, take a look at our jargon buster where we de-mystify some of the most commonly used terms. You can also take our quiz where, based on your personal circumstances, we'll tell you if the end of the tax year is something to think about.
If it is, we’ve listed the top things to consider before the end of the tax year.
The 2020/21 personal ISA allowance is £20,000. Any returns made within an ISA are tax efficient and are free of UK income tax and capital gains tax.
If you do not use your allowance, you can’t carry it over to a new tax year. So, if you’ve got savings lying around in your current accounts, it may be worthwhile putting as much savings as you can in a tax efficient ISA.
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As with your ISA, it may be worthwhile considering topping up your pension to increase your savings for retirement. When saving in a pension you receive income tax relief, depending on your personal circumstances.
The annual allowance for 2020/21 for pension contributions is £40,000. It’s also worth noting that you can bring forward unused allowances from previous three tax years, as long as you were a member of the pension scheme within those years.
If you have children, it may be a good idea to start saving for when the reach the age of 18. Children who are not yet 18 can open a Junior ISA (JISA) in their name and they can only access when they reach the age of 18.
As with an adult ISA, returns on money made within a Junior ISA are free of UK income tax and capital gains tax. The annual allowance for a JISA in 2020/21 is £9,000.
Everybody has an annual capital gains tax allowance of £12,300 in the 2020/21 tax year. This means that if you dispose or sell any assets such as property and stocks are shares, you won’t be taxed on the profits if they're below £12,3000.
You cannot carry over any unused capital gains tax allowance to the next tax year, so if you are planning to sell your assets, it may be worth considering staggering them over two tax years to take advantage of your allowance.
When gifting money to your family or loved ones after you pass, it’s important to remember that any estate (that includes your home) worth over £325,000 will be taxed at 40% for everything above that amount. So if your estate was worth £400,000, £75,000 of that would be taxed at 40% - that's a staggering £30,000.
One way to combat this is to use your annual exemption allowance of £3,000. This allows you to gift that amount without being liable for inheritance tax in the future.
You can carry over your gifting allowance from a previous tax year if unused, making the maximum amount £6,000. There are other exemptions too, such as no tax on wedding or civil partnership gifts up to £5,000 to your children and £2,500 to your grandchildren.
That completes our list of things you need to consider before the tax year ends in order to benefit from the tax efficiencies available to you.
Read more about financial wellbeing and money management over on the OpenMoney blog.