Jacob West, IFA, - Reminder to use all your tax allowances before 5th April 2022

Thursday 10 March, 2022

Any tax allowances available to you will be lost after 5^th April 2022.  Our financial advisers recommend you review your financial planning options now ahead of the new tax year.  Contact your Lonsdale independent financial adviser or complete our booking form 

ISA allowance

If you haven’t already used your ISA allowance for the 2021-2022 tax year you can invest up to £20,000 in a Stocks & Shares ISA or a cash ISA, so a couple can invest up to £40,000.  

There is no income tax to pay on any gains or interest, and all future withdrawals from an ISA are not subject to capital gains tax.

You can invest up to £9,000 into a Junior Individual Savings Account (JISA) for a child in any tax year. Your child must be under 18 years old and living in the UK.  You can invest in a cash Junior ISA or a stock and shares Junior ISA.  You won’t pay any interest on any cash invested in a Junior ISA.   Similarly on the stocks and shares Junior ISA you won’t pay tax on any dividends you receive or on any capital growth. Any child holding a Child Trust Fund (CTF) (children born 1 Sept 2002 – 2 Jan 2011) can’t open a JISA without first transferring the CTF funds to a JISA and closing the CTF. Or £9,000 pa can be added to the CTF instead of a JISA.

The Lifetime ISA allowance of £4,000 is also available to buy your first home or save for retirement.  To qualify and open a Lifetime ISA you must be over 18 years old but under 40 years old, you can add £4,000 per annum to a Lifetime ISA up to the age of 50. The government adds a 25% bonus to your savings up to a maximum of £1,000 per annum.  The £4,000 counts as part of your ISA allowance and you can hold it in stocks and shares, cash or a combination of both.

Pension allowance

How can you benefit from using your pension allowance?

Saving into a pension can be a tax efficient way to save for retirement.  Each person can contribute up to their annual earnings into their pension and get tax relief on those contributions, subject to an annual allowance limit of £40,000 (this includes both employee and employer contributions). This annual allowance limit can be reduced to as little as £4,000 for high earners. 

Tax relief is available at a person’s nominal tax rate, anything between 20% and 45% (even non-taxpayers receive 20% tax relief on contributions to pensions operating ‘relief at source’ such as personal pensions). 

If you had a pension in place “Carry-Forward” can be available for the previous 3 tax years. To make use of this you must use the current tax year’s annual allowance and then you are able to go back 3 tax years and utilise any unused allowances. 

Companies can also contribute to a pension plan on behalf of their employees/directors, and the company’s contribution is added to personal contributions when considering the annual allowance. 

Anyone employed can invest in their pension and use pension contributions to avoid paying higher or additional rate tax on their salary and bonus. 

Pension contributions are viewed as a business expense so, if an employer makes a pension contribution instead of paying a dividend to a director, it may reduce the corporation tax paid on the company profits and personal dividend tax on the contribution.

You can invest into a pension on behalf of someone else 

Even people who don’t work can benefit from tax relief on pension contributions, up to £2,880 per annum. They can then claim back £720 from the government who will top up the pension contribution to £3,600. 

This allows you to invest for adult children and grandchildren so they can save for retirement. Pension contributions made by another person still qualify for tax-relief at the recipient’s nominal rate.  For example, an adult child may be a higher rate tax-payer and a pension contribution paid by their parent (who may not pay tax or only pay basic rate tax) would qualify for relief at the higher rate. This can be used for inheritance tax planning as the pension contribution is viewed as a lifetime gift.

Capital gains tax

All individuals have a capital gains tax allowance of £12,300 for 2021/22.  This allows you to realise gains up to this amount without paying tax.  This only applies to investments that are not held in a pension or an ISA as there is no capital gains tax to pay on those investments.  If you have gains greater than £12,300 you pay 10% on these gains if the gains, when added on top of your income, are in the basic-rate tax band.  You pay 20% on any gain or part of gain that falls within the higher rate tax band when added on top of your income.

Jacob West, independent financial adviser, and member of the St Albans financial planning team said:

‘‘As our examples illustrate there are many tax allowances and several options available to you, therefore we recommend it’s important to take financial advice so our independent financial advisers can review your individual circumstances.  Pension legislation is particularly complicated which is why individuals need personalised financial planning advice. The above examples are broad and do not constitute financial advice but show what is possible. If you would like to learn more about the financial planning opportunities we offer, please contact us on 01727 845500.  It is never too late to start planning for your future and getting financial advice just before the new tax year is a good time to start.’

In Summary...

If you are looking to use your tax allowances before the tax year end, contact your local financial adviser now or complete our booking form and we will contact you.  

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 investedFor more information read:

Conor McClean - Can you retire earlier than you think?
Howard Goodship chartered financial planner Ringwood, What is the 'right' level of risk?
Richard Porter, IFA St Albans, Why shareholder protection is necessary for all business owners
Steve Cook Director Lonsdale Services, Lonsdale Services deliver excellent client satisfaction

 

 

 

 

 

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