It’s in your diary, I’m sure. That magic date of 5th April: the end of the tax year.
This is the cut-off date for us all to save tax on investments and earnings over the last twelve months and it’s worth taking a few minutes to review your finances and make sure you’re not giving any more of your hard-earned cash to the tax man this year than you absolutely have to!
Max-out your ISA
ISAs are a great way to make money without having to pay tax. All UK adult residents can put up to £20,000 a year into some form of ISA. I personally put money only into stocks and shares ISAs or IFISAs (Innovative Finance ISAs) as they generally do much better than boring Cash ISAs over time.
If you are under 40 you could put some money into a Lifetime ISA (LISA) which is definitely worth doing. With a LISA you can put in up to £4,000 per tax year and not only will your investment go up over time (you would hope, anyway) but you automatically get an extra 25 per cent put in by the government too. So if you can put the full amount in you get an extra £1,000 to boost your investment.
Don’t forget the kids either as they can put up to £9,000 per tax year into a Junior ISA. Even if you only have a hundred or so to put in for them it’s worth doing.
Jasmine Birtles explains what to do before the tax year ends
JASMINE BIRTLES
Put as much as possible into your pension
Pensions are another fantastic way to save tax on your investments. Any money you put in automatically attracts a payment from the government of the tax you would have paid on that money.
Most people have an annual pension allowance of £60,000 per tax year. This is the maximum amount you can put in and get tax relief. Also, if you didn’t use your full allowance from the last three years (the limit was £40,000 then) the carry forward rules allow you to use up unused annual allowances from those years.
You can also put money into your children’s – or grandchildren’s – pensions before the end of the tax year. Children can have up to £2,880 per tax year put into a pension fund for them and it’s a great way of setting them up for the future, even if you only have a few pounds to put in.
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Remember inheritance tax (IHT)
The end of the tax year is a good time to make gifts to remove some money from your future estate for inheritance tax (IHT).
You can give away up to £3,000 tax-free each tax year, plus any number of small gifts up to £250 per person, provided you haven’t used another allowance on the same person. You can gift up to £5,000 to a child getting married, £2,500 to a grandchild or great-grandchild getting married, and £1,000 to anyone else getting married.
You can give money out of surplus income regularly so long as it doesn’t significantly change your lifestyle, and these gifts would not be counted as part of your estate when you pass on. Keep detailed records of these gifts in case HMRC asks for evidence after your death.
What about your Capital Gains Allowance (CGT)?
We each have a fabulous (!) £3,000 per tax year that we can ‘realise’ in capital gains before we have to pay tax on any profit we have made by selling something like shares or art or other assets that have increased in value over the last year. Don’t sell something just to get the tax relief, but if you were thinking of liquidating one or two assets, it is worth doing it before the end of the tax year to get the benefit.
Couples who are married or in a civil partnership can take advantage of two CGT exemptions, as assets can be transferred between spouses without being taxed. So consider transferring assets between yourselves before a sale to use up each partner’s exemption. Also if you have assets that are standing at a loss, you could consider selling them to offset any capital gains realised in the year.
By the way, if you’re married, or in a civil partnership, make sure you are making the most of the extra tax savings that are offered to couples. For example, the marriage allowance, allows one partner to transfer up to £1,260 of their personal allowance to the other, reducing the spouse’s tax bill by up to £252 for the tax year. This allowance can be backdated for up to four years.
If you have a good deal of investments and/or a large family and dependents it’s worth paying a financial advisor or accountant to go through your financial affairs at this stage of the year to make sure you’re making the most of your money and not paying any more tax than you have to. To find a good financial advisor in your area take a look at Vouchedfor.com where former clients review advisors for you.
Jasmine Birtles is founder of the self-help financial website MoneyMagpie.com.