Now that 2022 is upon us, it is important to make sure that you are fully prepared for the end of the tax year on April 5th.
That means it is time to get everything in order ahead of this deadline, such as making the most of your tax allowances.
In this article, we round up some of the allowances you should look at before the tax year ends.
If you have a cash ISA, a stocks and shares ISA, or a combination of the two, each year you can invest or save up to £20,000 per person. That means a married couple can invest up to £40,000 between the two of them.
These allowances can be split across different types of ISA, but you cannot carry over any unused allowance from one tax year into the next.
Inheritance Tax (IHT), must be paid if your estate is worth more than £325,000, while the threshold is £650,000 for married couples. However, you can reduce your IHT liability by planning carefully, such as by making full use of your annual gift allowance. This stands at £3,000, or £6,000 for married couples.
Other options could include, giving away up to £1,000 per person as a wedding gift, £2,500 to a grandchild or great-grandchild and £5,000 for a child. You could also rewrite your Will or put assets into a Trust.
In April 2017, a new IHT Residence Nil Rate Band (RNRB) was put in place and now stands at £175,000. This is on top of a person’s own nil rate band of £325,000, and depends on their main residence being passed down to their direct descendants, such as children and grandchildren.
The RNRB can be transferred to a spouse or civil partner after they die, as is the case with the standard nil rate band. The unused percentage of the RNRB from the estate of the first to die can be claimed on the second death.
Capital Gains Tax
This is a tax you make on the profits you make, when you sell assets such as a personal possession worth at least £6,000, or a second home.
The allowance currently stands at £12,300 per person, which means couples do not have to pay tax on £24,600 worth of gains. Genuine gifts from a spouse or civil partner do not count towards this allowance.
Top up your pension contributions
Check your pension contributions at least once during every tax year, as this can make a big difference to your tax liabilities.
If you are a high earner, you should also keep the lifetime pension allowance, which currently stands at £1,073,100, in mind. Any contributions that surpass the allowance can be taxed.
If you are not close to that limit, you can reduce your tax liability by increasing your pension contributions.
Remember that if you have not made full use of your £40,000 annual allowance, it can be carried forward for up to three years. If you have already started accessing your pension, a lower annual limit of £4,000 may apply.
Top up your children’s savings
The Junior ISA savings limit is currently £9,000, so you could use the next few months giving your child’s savings a boost by helping them reach this limit.
You could also contribute to your grown-up children’s Lifetime ISA if they have one, and the government will add a 25% bonus to your savings, up to a maximum of £1,000 per year.
Your dividend allowance
If you receive dividends through a Stocks and Shares ISA or you are a company shareholder or director, you can currently receive £2,000 worth of dividends, tax free.
If you have any questions about these various allowances and would like to discuss your options, do not hesitate to get in touch with us today.