It’s that time of the year again – the end of the tax year is less than one month away. Which means you have one month left to use various tax allowances, which you won’t get again!
Individual Savings Account (ISA)
You can invest up to £20,000 into an ISA before April 5th and it will grow completely free of tax. When you come to take the money out, you still won’t pay tax. Even if you can’t use up your whole allowance, use as much as you can! It’s a take it or leave it deal, so just take it!
Cash ISAs are offered by banks and building societies. Just be careful as some don’t let you take the money out for a fixed term, and the interest rate will insult you – most pay less than 1%!
Alternatively, you could invest in a Stocks and Shares ISA. You can get one from various providers and systems, us included! If you fancy it, try this out. If you are already a client, log in and one of your options is ISA Subscriptions, which will show you your remaining allowance.
The total amount you can contribute to an ISA in the 2017-18 tax year is £20,000. So if you have been contributing to a Lifetime or Help to Buy ISA, you can still use the remaining allowance in a Stocks and Shares ISA.
In this tax year, you are allowed to earn up to £11,500 of income before paying tax. If you are married, and one of you doesn’t use this and the other is a basic rate tax payer, you may be able to transfer £1,150 of your unused allowance to your partner. This could save you £230 this year! Here’s more info on the Marriage Allowance. This comes in useful most often if your partner has been on Maternity or Paternity leave or has become a stay at home parent because it’s cheaper to give up a salary than paying a small fortune for child care.
You have a dividend allowance this year of up to £5,000 tax free. You’ll only really be able to use this up if you’ve set up your own company and you’re a shareholder as you can decide to pay yourself a dividend. Just be aware if there’s more than one shareholder, all shareholders must be given the same opportunity. This will be decreasing to £2,000 in April – so use it or lose it!
Most of us have an annual allowance of £40,000* which we can invest into a pension each year. You would be in a fortunate position if you can use it all but there’s a few reasons why you might consider making an extra contribution before 5th April.
If you find yourself creeping in to the higher rate tax band (earn more than £45,000), it might be worth making a pension contribution, if you can afford it! This way, you expand your basic rate tax band and might just avoid paying any 40% Higher Rate Income Tax.
Another reason to consider a pension contribution is if you earn over £50k and have children qualifying you for child benefit. There is something called the High Income Child Benefit Tax Charge, where those who earn over £50,000 per annum lose the child benefit. For Example, if you earned £52,000 this year, you could make a net pension contribution of £2,000 to bring your Adjusted Net Income below the threshold, and then you won’t lose it.
There are a whole range of ways to reduce the tax you pay which I’m not going into. Particularly if you run your own company, you have so many options that it is worth having a chat.
After all, it’s your money – you earned it so make sure it says in your wallet!
*If your income is more than £110,000 you will begin to lose some of your pension annual allowance.
The value of an investment in a stocks & shares ISA or pension can go down as well as up and you may not get back everything you have invested.