The end of the financial year is usually 5th April (click HERE to find out why it’s earlier in 2021) so now is a great time to look at your finances and make the best use of your tax allowances.

There are a number of steps you could take, all of which can help you reduce the level of your tax liability, either individually or – if you are married or in a civil partnership – as a couple.

1. Individual Savings Accounts (ISA)

If you have an ISA, have you utilised the tax-free ISA allowance of £20,000 for the 2020/21 tax year? An ISA – or individual savings account – allows you to make tax-free contributions up to a certain level. They can be spread across any of four different ISAs:

• Cash ISAs
• Stocks and shares ISAs
• Innovative finance ISAs
• Lifetime ISA

Money in an ISA is exempt from income tax and capital gains tax.

For those under 18 there is the Junior ISA, which has an annual limit of £9,000.

16 and 17 years olds have an additional allowance whereby they can invest in both a Junior ISA and a cash ISA, meaning they can invest up to £29,000 in ISAs in a single tax year.

2. Pensions

If you have a personal pension, you can pay in up to 100% of your salary or £40,000 (whichever is lower) each tax year. Importantly, the £40,000 is across all pensions schemes you may have – it’s not a per scheme amount. However, in certain circumstances you may be able to pay more.

But you can contribute to a pension even if you don’t earn anything (and receive tax relief from HMRC). The maximum you can contribute is £3,600 (including tax relief).

3. Marriage Allowance

Marriage Allowance is a useful tax saving tool if you are married or in a civil partnership and you were both born after 6 April 1935. This allows one person to transfer 10 per cent of their personal allowance to their spouse. Marriage Allowance allows you to transfer £1,250 of your Personal Allowance to your husband, wife or civil partner in the current tax year. This reduces their tax bill by up to £250 in the tax year.

To benefit, one half of the couple (who will be transferring part of their unused personal allowance) must earn less than their annual personal allowance (currently £12,500 for 2021/21 tax year). The other half of the couple (who will be receiving part of their partner’s unused allowance) must be a basic rate tax payer.

Claims can be backdated to include any tax year since April 2016 that you were eligible for Marriage Allowance. Indeed, if your spouse has died since this date, you can still claim.

4. Capital Gains Tax

There is an annual Capital Gains Tax allowance which can be transferred between married/civil partnership couples to utilise both annual allowances. The annual allowance is £12,300 per person for the 2020/21 tax year. So for example, if one half of the couple makes a gain of £25,000 then part of this can be transferred to the spouse, in their name.

For some assets (e.g. shares or unitised investments), you may be able to stagger encashments either side of the tax year to utilise CGT allowances from two tax years.

5. Gifting

If you are planning on gifting money, then you could take advantage of annual inheritance tax exemptions.

You can give away up to £3,000 per financial year (if unused, this can also be carried forward to the following tax year).

Also, you can give as many gifts of up to £250 per person as you wish during the tax year, as long as you have not used another exemption on the same person. And there are further exemptions related to money given as a wedding/civil ceremony gifts, donations to political parties and charities and gifts out of surplus income.

These are some of the many ways to mitigate your annual tax bill. Tax planning is a great way to help maximise your income and have a greater understanding of your tax liability.

For more information, help and advice, why not get in touch with the team here at Proposito Financial Planning. Email hello@proposito.co.uk or call the Cirencester office on 01285 708444.