The 2019/20 tax year ends on April 5th 2020.
The end of the financial tax year is a great reason to review your finances and make sure that you’ve taken advantage of all of the tax efficiencies available to you. We’ve listed the top things to consider before the end of the tax year.
Top up your ISA
The 2019/20 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.
Don’t have an ISA? Take our financial health check and get personalised Financial Advice from OpenMoney.
Contribute towards your retirement
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 2019/20 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.
Save for your children
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 2019/20 is £4,368.
Use your capital gains tax allowance
Everybody has an annual capital gains tax allowance of £12,000 in the 2019/20 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 £12,000.
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.
Reduce your inheritance tax
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.