New Year resolutions to save tax
At this time of year we think about New Year’s resolutions. It is also a good time to start planning your tax affairs before the end of the tax year on 5 April.
An obvious tax planning point would be to maximise your ISA allowances for the 2020/21 tax year (currently £20,000 each).
You might also want to consider increasing your pension savings before 5 April 2021 as the unused annual pension allowance is lost after three years.
For those looking to do some inheritance tax planning, it would be a good time to review (or make) your Will.
For most taxpayers the maximum pension contribution is £40,000 each tax year, although this depends on their earnings. This limit covers both contributions by the individual and by their employer.
Note that the unused allowance for a particular tax year may be carried forward for three years and can be added to the relief for the current, but then lapses if unused.
Hence the unused pension allowance for 2017/18 will lapse on 5 April 2021 if unused.
A change to the pension annual allowance tapering rules from 6 April 2020 means that less taxpayers will be impacted by the tapered annual allowance. Threshold income (broadly net income before tax) has increased from £110,000 to £200,000 and the adjusted income threshold (broadly net income plus pension contributions) has increased from £150,000 to £240,000. HMRC estimates that around 250,000 taxpayers will be able to increase their pension savings as a result of this change.
However, for taxpayers still affected by the tapering the minimum allowance has been reduced from £10,000 to £4,000.
For further information on tax planning, please contact Helen Spalding on 023 8046 1234.