New Tax Year: Give yourself a head start
Looking ahead to the forthcoming tax year, there are a few changes which, could be advantageous to you.
Personal Income Allowance remains unchanged.
First, the personal income tax allowance remains unchanged at £12,500 p.a. If you’re married, are you and your spouse both making the most of your personal allowances? Tax allowances aren’t transferable and both partners’ should be used to the full. Two people can have a joint income of £25,000 a year tax free, by using both personal income tax allowances.
Your Allowances Have Reset
Finally, allowances are re-set at the start of the tax year, so, you have a £20,000 ISA allowance, which means that any money paid into your ISAs up to that limit can grow tax free.
One way in which we regularly help people year after year is in advising them on how to make maximum use of their pension contributions. The annual limit you can contribute to your scheme and qualify for income tax relief is £40,000 gross and, if you’re a basic rate taxpayer, the relief is 20%. Also, you can take advantage of unused allowances from three years ago, so someone who hasn’t paid in anything this year or the previous three could pay in up to £160,000.
How Elizabeth Jeffrey benefitted...
This year, one client, Elizabeth Jeffery had £70,000 she wanted to put towards her retirement and she had £30,000 of unused allowance from previous years. Because of the tax relief, she only needed to pay in £56,000 to make her £70,000 gross contribution, because the government adds £14,000. We recommended that Elizabeth paid her spare £14,000 into Transact General Investment Account where we could invest it to grow until the end of this tax year, at which time she can repeat last year’s exercise and pay into her pension. Even without any growth, the tax relief will mean a gross payment of £17,500. As a result, over the two tax years, Elizabeth’s £70,000 has been worth at least £87,500 to her, thanks to our advice.
It’s very important to review your position for a number of reasons: