Tax year end planning – your allowances

As we are approach the end of the tax year (5th April 2020), our Claire Davison, Independent Financial Adviser summarises the current allowances that may be available to you to see if you could benefit.

Your ISA Allowances:

Although you may be aware that you have an ISA allowance, you may not be aware that if you do not use it, you will lose it. The current ISA allowance is £20,000 for the 2019/20 tax year; this can be saved into either a Cash ISA, Stocks & Shares ISA or a combination of the two, but please note Stocks & Shares ISAs do not include the same security of capital which is afforded with Cash ISAs.  If you are going to save into a Stock & Share ISA make sure you seek financial advice to ensure you understand the risks, as investments will rise and fall.  In addition, there are other ISA’s; ‘Innovative Finance’ and ‘Lifetime ISA’s’ as well as ‘Junior ISA’s’.

Your Pension Allowances:

Are you aware that you also have an allowance with pensions?  You’re able to pay up to £40,000 (gross) each tax year (subject to earning at least £40,000).  If you have no earnings, you are still able to pay up to £3,600 (gross).  Your employer can also pay into a pension on your behalf, but your tax relief will work differently.  A pension can be a tax efficient way to save for retirement as well as pass on wealth to your beneficiaries tax efficiently.

Inheritance Tax Gifting Allowances:

You have an allowance called the ‘nil rate band’ which is the amount you are able to leave behind to your estate (when you die) without paying inheritance tax.  This is currently £325,000, but if you’re married you may be able to inherit a deceased spouse/partner’s nil rate band and effectively double the allowance to £650,000.  If your estate (after taking away liabilities) exceeds your nil rate band, you will normally be taxed at 40%.  However, (as with ISAs and pensions) you do have annual gifting allowances available including the annual exemption of £3,000 (with this you are also able to go back one year if the previous years’ allowance wasn’t used and gift £6,000).  The benefit here is you’ll reduce the size of your estate and therefore (reduce) the tax bill. If you make large gifts you may suffer an immediate tax charge.  There are other allowances available, including gifts on marriage.

In addition, there is a main residence nil rate band. This measure introduces an additional nil-rate band when a principal private residence is passed on death to a direct descendant.

This is being phased in as follows:

  • £150,000 in 2019 to 2020
  • £175,000 in 2020 to 2021

It will then increase in line with Consumer Prices Index (CPI) from 2021 to 2022 onwards. Any unused nil-rate band will be able to be transferred to a surviving spouse or civil partner.

The additional nil-rate band is also now available when a person downsizes or ceases to own a home and assets of an equivalent value, up to the value of the additional nil-rate band, are passed on death to direct descendants.

However, there will be a tapered withdrawal of the additional nil-rate band for estates with a net value of more than £2 million. This will be at a withdrawal rate of £1 for every £2 over this threshold.

The existing nil-rate band will remain at £325,000 until the end of 2020 to 2021.

Capital Gains

In 2019/20 the Capital gains tax allowance stands at £12,000. The basic rate of capital gains tax is currently 10% and the higher rate is 20%. However, higher rates of 18% and 28% apply in certain situations such as the sale of residential property (not your main residence).

You then only pay tax on the excess over your allowance and there are some gains which are tax free such as selling your main residence or your car.

If you are looking to make a large disposal from an investment which would be subject to capital gains tax near to the end of the tax year, you may be able to make a partial withdrawal in both the current tax year and the next (tax year) to make use of both (tax year) allowances and to minimise any tax that would be payable.

For help & advice with this or any of your financial planning needs call your Financial Adviser on 01642 765957 or visit the website

The content of this blog is for information only and must not be considered as financial advice.  We always recommend that you seek independent financial advice before making any financial decisions.

Levels, bases of and reliefs from taxation may be subject to change.

The Financial Conduct Authority does not regulate taxation advice.  Active recommends you speak to a Tax Adviser/Accountant for this; Active would be happy to introduce you to one of our close partners.

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