TAX YEAR END CHECKLIST
APRIL 2020

Investment & Wealth Advice




8 POINTS TO CONSIDER BEFORE THE TAX YEAR ENDS

It may be the last thing on most people’s minds right now, but the current tax year ends on April 5th. At that point, annual savings and tax allowances will reset, and in most cases, if you haven’t used them, you’ll lose them. So, here’s a short checklist of what to consider doing before April 6th dawns. 

1. Fill up your ISAs

Your annual Individual Savings Account (ISA) allowance is £20,000 which can be split between cash and investments. If you are under 40, you could open a Lifetime ISA (LISA) as part of this overall allowance or continue to contribute to one if you are over 40 and under 50, and already have a LISA.    

Any money invested via an ISA is protected from income tax, dividend tax and capital gains tax (CGT). You won’t necessarily have to pay tax on any of these things as long as any income or gains from them don’t exceed the personal allowances, but all else being equal it makes sense to make use of the tax-efficient wrapper where possible – you may not exceed the personal allowances as yet but over the long run, you might, and that’s when you’ll be glad of the wrapper. 

2. Top up your pension

Each year you can contribute as much as £40,000 to your pension (as long as you earn at least that much), although higher earners (those whose “threshold income” is above £110,000 and whose "adjusted income" is above £150,000) can see this taper down to as low as £10,000. Pension contributions benefit from tax relief at your highest marginal income tax rate. This means that pensions can be a particularly effective form of saving for higher-rate taxpayers. If you have sufficient earnings, it’s also possible to carry forward any unused allowance from the previous three tax years (so if you have any unused allowance from 2016/17, this is your last chance to use it).  

Do bear in mind that there is a Lifetime Allowance on pensions, which currently stands at £1.055m, and is now indexed annually in line with the Consumer Prices Index (CPI).  If your pot breaches that limit, you will incur penalty tax charges on the excess. Critically, this limit is not on contributions – it is on the total pot, including investment returns. Predicting whether you are in danger of going above the limit is not straightforward, particularly if you have a defined benefit pension anywhere in the mix. If you are in any doubt, speak to one of our Financial Planners about the best course of action.

3. Consider your capital gains tax allowance

Capital gains tax (CGT) is payable on profits made on the sale of assets. The annual allowance is currently £12,000, above which CGT is charged at 10% for basic rate taxpayers (18% on property) or 20% for higher rate (28% on property). It is worth considering how to make best use of this when timing the sale of assets, particularly if you have a spouse (see below). You can also make use of your CGT allowance to sell investments that are held outside of a tax-efficient wrapper and then reinvest via an ISA, for example (this is sometimes known as “bed and ISA”). 

4. Couples should consider their finances jointly

Those who are married or in a civil partnership should look at their finances on a joint basis. Transferring ownership of assets can boost your overall tax efficiency, particularly if one spouse pays tax at a lower rate than the other (for example, an income-producing asset would be better owned by a spouse paying basic rate income tax rather than higher rate). It’s also possible to make use of both of your CGT allowances in this way (see above). 

5. Look at gifting for IHT purposes

If inheritance tax (IHT) planning is relevant, then note that each year, you can make gifts that will automatically fall outside of your estate for inheritance tax (IHT) purposes. For example, you can make unlimited individual gifts of up to £250 per person, or wedding gifts of up to £5,000 for a child; £2,500 for a grandchild or great-grandchild; and £1,000 for anyone else. Alongside this, every individual has a £3,000 annual IHT gift exemption. This can be carried over for one year only – so if you did not use last year’s then you could give away £6,000 before the end of the current tax year.   

6. Plan gifts to charity

Tax relief is available for gifts made under Gift Aid during the tax year, but it’s worth knowing that you can also carry back donations made after 5 April and before the 31 January 2021 filing deadline.  The charity recovers basic rate tax on top of your gift, so, if you donate £80, the charity can claim a further £20 from the Government, making a total gift of £100. 

Additionally, if you’re a higher or additional rate taxpayer, you can recover the difference between the basic rate tax and the rate of tax you actually pay.  That means that someone paying the top tax rate of 45% would recover £25, reducing the cost of the £80 gift to £55.  However, your generosity can backfire if you have not paid enough income tax or capital gains tax to cover the Gift Aid as you have to repay the basic rate tax recovered by the charity, so check your tax position before signing the Gift Aid declaration.

7. Start planning for future generations

If you have sufficient cash to save for children or grandchildren, then there are two main tax-efficient options to consider. You could put money away in a Junior ISA (JISA). This year the annual allowance is £4,368, and from next tax year it jumps to £9,000. The money is locked away until the child turns 18, at which point he or she gains full control of the pot. 

You can also contribute to a pension for a child (or any other individual who doesn’t earn an income, for that matter). You can put up to £2,880 into the pension, and basic rate tax relief will increase that to £3,600. This is locked up until the recipient turns 55 (and of course, that age may well have risen by the time they come to access it). 

8. Financial planning, the Weatherbys way

Tax efficiency may feel like an administrative headache, but it can make a significant difference to your long-term finances. Do get in touch if you would like to discuss anything with a member of our team.

Tax rules are subject to change and will depend on individual circumstances.

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