Are you making the most of your allowances?

January 26th 2021

As the end of the tax year approaches we urge you to make sure you are taking advantage of all available tax relief allowances on your investments.

Pensions
Income Tax relief is granted at up to your highest marginal rate, with a maximum Annual Allowance contribution limit of £40,000 and the ability to Carry Forward unused relief from the past three years. Tapered and Lifetime Allowances need to be taken into account where relevant.

Individual Savings Accounts (ISA)
ISAs are free from Income and Capital Gains Tax (CGT). The annual allowance is £20,000 per adult. Parents and grandparents looking to save for children and/or grandchildren should consider investing into Junior ISAs, currently £9,000 per minor.

Those between the ages of 18 and 40 can invest £4,000 per annum into a Lifetime ISA. Contributions paid before age 50 will receive a 25% Government bonus, if used towards purchasing a first home or can be retained until age 60.

Both pensions and ISAs grow free of Capital Gains Tax and Income Tax and the former do not usually form part of your Estate for Inheritance Tax purposes.

Capital Gains Tax (CGT)
The annual exemption is currently £12,300 with transfers between spouses exempt. CGT rates are 18% for basic rate tax payers and 28% for higher and additional rate tax payers on residential property sales. The taxable gain on all other assets liable to CGT is payable at 10% for basic rate tax payers or 20% for higher and additional rate tax payers. These rates are at historically low levels and thought should be given to crystallising gains now and reinvesting.

Inheritance Tax (IHT)
As the Chancellor struggles to cover the cost of supporting the economy during the pandemic it is unlikely that IHT will be reduced or be made any easier in his Budget in March. Taxable estates are subject to tax at 40% on death, so planning to avoid such a potentially significant liability is crucial. The existing Nil Rate Band of £325,000 is available to everyone but the newer Residence Nil Rate Band of £175,000 gradually reduces on Estates over £2m.

There are many ways of reducing the exposure to IHT whilst still retaining income and control and we would recommend reviewing the planning options before the Tax Year End and preferably before the Budget.

Venture Capital Trust (VCT) and Enterprise Investment Schemes (EIS)
VCTs and EISs have their place in certain circumstances and have valuable tax breaks as part of their make-up but are high risk and should only be considered in very specific situations.

If you would like to discuss any of the above or you need more information or you just would like to have a general review please speak to one of our team who would be pleased to help.  We can be contacted on 0845 671 8999 or email

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