With the end of the current tax year fast approaching, it’s worth considering the various allowances available to individuals and keeping track of the use of these. Such allowances will ‘reset’ from the beginning of the next tax year; 6th April 2022.
Below, we have outlined some of the key considerations and the current rules:
This is the maximum amount that can be invested into ISA wrappers each tax year, currently at £20,000 pa. It can be split across a Stocks & Shares ISA, Cash ISA, Lifetime ISA (maximum of £4,000 pa), and/or an Innovative Finance ISA, as long as you keep within the overall limit and don’t contribute to more than one of each type.
Money held within an ISA is free from Income and Capital Gains Tax, and withdrawals can be made tax-free.
Your Annual Allowance is the most you can save in pensions in a tax year with tax relief applying before incurring a tax charge. The standard Annual Allowance is £40,000 pa, although separate limits may apply that can reduce this.
The maximum you can contribute to a pension and qualify for Income Tax relief is the higher of 100% of your relevant UK earnings or £3,600 gross, subject to your Annual Allowance. Income Tax relief can only be received until age 75.
Capital Gains Tax (CGT) Annual Exempt Amount
Each year, individuals have an Annual Exempt Amount for Capital Gains Tax, above which tax will be payable on gains. By gain, we mean the ‘profit’ that is made on the disposal of certain assets. The exemption can be managed within an individual’s planning to help minimise CGT liability.
The annual exempt amount for 2021/22 is £12,300 and is frozen at this level until April 2026.
Inheritance Tax Gifting Exemptions
Individuals can make use of their annual gifting exemption, currently £3,000 pa, by gifting this amount and having it fall immediately outside of their estate for Inheritance Tax purposes. Any unused amount can be carried forward to the next tax year, but no further.
Depending on their level of income and expenditure, individuals may also be able to make use of the ‘gifts out of surplus income’ exemption. Certain requirements must be met to use this, but if used successfully the gifts will also become immediately free of Inheritance Tax.
We manage the above allowances and exemptions within our clients’ wider financial planning, as part of our ongoing service. This ensures they are making good use of their resources over time.
If you would like any more information on the above, please do not hesitate to contact a member of our team.