Happy New (Tax) Year!

This month saw the start of the new 2019/20 tax year and with it comes a whole new bunch of goodies from the Government in the form of tax allowances. These allowances help to keep your tax bill for the year as low as possible.

The first big allowance to consider is your Personal Allowance for income tax purposes. This has increased to £12,500 for the 2019/20 tax year so only income in excess of that threshold will be assessed for tax.  If you are a high earner you may need to take tax advice as the Personal Allowance is reduced by £1 for every £2 of “adjusted net income” over £100,000.  It is possible to reduce your adjusted income with measures such as pension contributions so getting advice can be of real benefit here.  Families with more modest incomes have opportunities too:  if you are married or in a civil partnership with one of you a basic rate taxpayer and the other earning less than the Personal Allowance, you may want to consider transferring some of the Personal Allowance from the low earner to the basic rate taxpayer, saving up to £250 a year in tax.  This is known as the Marriage Allowance – do get advice if you think you might qualify.

The next allowance to explore is your ISA Allowance. We’re always amazed at how many people leave investing in ISAs until the tax year is coming to a close in February or March, rushing to use their allowance at the last minute.  It makes much more sense to get your money invested as soon as possible so that you can benefit from any growth throughout the year.   The 2019/20 ISA Allowance is £20,000 – the same as last year.  The beauty of ISAs is that returns and growth remain tax-efficient for as long as you keep your money in the ISA framework, irrespective of how big your ISA investments get over time.

Another important allowance is your Annual Allowance for pension contributions, which stays at £40,000 for the year ahead for most pension savers (provided you haven’t started taking flexible withdrawals from your fund). This is the maximum you can put into your pension in the tax year and receive tax relief.

There are also annual allowances covering income from dividends and growth in your savings. The Dividend Allowance gives you £2,000 of dividend income free of tax with any income from dividends over that threshold taxed according to your income tax rate band at 7.5%, 32.5% or 38.1%.  Your Personal Savings Allowance permits basic rate taxpayers to earn up to £1,000 of savings interest without incurring a tax liability.  Higher rate taxpayers get half that at £500 but additional rate taxpayers get no Personal Savings Allowance at all.

If you change the composition of investment portfolios outside of a stocks and shares ISA, you may potentially incur a Capital Gains Tax (CGT) liability on any profits you make. However, you get an annual CGT allowance of £12,000 so you will only pay CGT on any gains you make above that.  CGT may also be payable if you have invested in property that isn’t your main home and then sell it at a profit.

The tax allowance framework can be complex, particularly if you have income from a range of sources and investments on different platforms. Paying the appropriate tax on our income and investments is our duty, of course, but keeping the tax due at manageable levels is perfectly sensible and permissable.  Take advice to make sure that you take advantage of all the goodies in the Government’s tax allowance bag.

Any opinions expressed in this article are subject to change and not advice. The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.  The tax treatment of investments depends on individual circumstances and is subject to change. 

For an exploratory review at no cost to you call or email us today