Updated: Jul 21
As the end of the tax year approaches on April 5th, there’s a checklist of things you should be reviewing to ensure that you’re optimising your reliefs and allowances.
The first point is to make sure you are maximising your pension contributions. The taxman gives generous reliefs to top up any contributions you make and these can turbocharge your pension pot’s growth. Basic rate taxpayers receive 20% pension tax relief, so, if you pay £20,000 into your pension, you receive another £5,000 from the taxman by way of income tax relief. Higher rate payers receive relief at 40%.
The maximum tax-free allowance each year can vary between £3,600 and £160,000 depending on circumstances. Unused contributions can be carried over from the previous three years, so check all your pension pots. Also, make sure you use your employer contributions effectively.
ISAs can be used in conjunction with your pension to generate cash savings. Each person’s ISA allowance is £20,000 a year, for children this is £9,000 – with tax-free growth and withdrawals. With an ISA, you cannot carry forward any allowance, so it’s a case of use it or lose it. With a Lifetime ISA, the allowance is £4,000 each year from the ages of 18 to 39, and the government will add a 25% bonus of up to £1,000 a year. You can draw from your Lifetime ISA when you first buy a home or when you’re aged 60.
The Personal Income Tax Allowance is £12,570, which can come from employment income, pension income, or income from a limited company. If you have no income, it’s possible to withdraw £12,570 from your pension tax free.
Finally, there’s Capital Gains Tax Allowance, which is £12,300 for individuals and £6,150 for trusts. You should consider deducting losses and claiming reliefs to reduce your tax bill.
In conclusion, make sure you’re ticking all these things off your checklist when making your tax plan. But don’t leave it at that, at Reeves Independent we have further income tax planning resources that could improve your position.
This article is informational and should not be taken as advice. If you would like bespoke advice and recommendations, then book a tax review today with a Reeves Independent adviser.
No advice should be conferred from the articles. No action should be taken without independent professional financial advice as any actions on your pension may be irrevocable and have a big impact on your income in retirement.
Please note that tax rates and reliefs are dependent upon an individual’s unique circumstances. These tax reliefs and rates differ between Scotland and England.