New Tax Year: Give Yourself a Head Start


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 has increased

First, from the start of this tax year, the personal income tax allowance has gone up from £11,850 to £12,500. Now, people who are drawing down from their pensions can take an extra £55 a month or £650 a year without paying any income tax.


Auto-Enrolment Payments Have Increased

Second, auto-enrolment minimum payments have increased. So, if you’re one of the millions automatically enrolled into a workplace pension, the amount that must be paid in went up in April 2019, from 5% to 8% of your salary. A minimum of 3% of which must be paid by the employer as a result, what you have to contribute is likely to increase too, in most cases up to 5%. This is good deal for the employee, who is essentially getting `free money’ from their employer, so we encourage any clients who are in auto-enrolment schemes to stick with them. 


Lifetime Allowance Has Increased

Third, the Lifetime Allowance is going up. This is the limit of the pension benefit that can be drawn from a pension – in the form of lump sum or retirement income – without triggering an extra tax charge. The old limit was £1,030,000, and that has become £1,050,000. It doesn’t affect a lot of people, but for those it does, it’s worth taking advantage of.


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 as the end of each tax year approaches for a number of reasons:

  • Not all allowances can be carried forward to the fo​llowing year – use them while you can;
  • Some allowances that you may have been able to carry forward, may be about to expire – don’t lose them;
  • You can lose out and not maximise your wealth by failing to get tax back from the government;
  • Have the best financial year you can by reducing the tax you pay.
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About the Author

By Nigel Reeves: My mission is to provide the quality, honest & jargon-free pension advice that people need to secure the retirement they deserve. At home, I'm a family man and an active supporter of grassroots sports!

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