25th July 2019 at 2:32pm
1. Get ahead of the deadline
It makes sense to be tax wise all year round but with the tax year ending on 5 April, give yourself time to make the most of this year’s tax allowances and pension tax benefits.
2. Top up your tax-efficient savings
If tax-friendly saving is on your list, you’ve still got a few weeks left to make the most of this year’s ISA allowances.
You can save up to £20,000 in an ISA (Individual Savings Account), whether that’s in cash, stocks and shares or a mix of both. You don’t pay tax on income or gains (including Capital Gains Tax), or on any interest earned in a Cash ISA.
Children get their own Junior ISA allowance of £4,260, which rises to £4,368 from 6 April.
Remember with stocks and shares ISAs and pensions your savings are invested, which means that they have the opportunity to grow over time. However as with all investments, the value can go down as well as up, and you could get back less than you paid in.
3. Make the most of pension tax relief
Your pension is a tax-efficient way to save for your future thanks to tax breaks on contributions you make to your pension – normally at the highest rate of income tax you pay.
Just make sure you claim the tax back from HMRC if you need to.
If you’re topping up your pension, it’s easy online. You can use our App to check how much you’ve paid in this tax year and how much more you can still pay in.
You can normally contribute as much as you earn each year into your pension, up to the annual allowance of £40,000 and benefit from tax relief, although different circumstances apply if you’re a higher earner with an income of more than £150,000, or you’ve started to take your pension.
Save more than your allowance and you could face a tax charge designed to take back your tax relief, unless you can use any ‘unused allowance’ from the last three tax years.
4. Use your unused allowance
The good news is that if you haven’t used all your annual allowance in the last three tax years, you could pay more into your pension by ‘carrying forward’ what’s left to make the most of the tax relief on offer.
However, if you’ve started to take your pension savings and you’ve taken more than your tax-free cash allowance – normally 25% of your savings – you get the Money Purchase Annual Allowance, which is £4,000 a year and you can’t carry forward any allowances.
5. Get your tax-free Personal Allowance back
When your taxable income reaches £100,000, you start to lose your tax-free Personal Allowance, which is £11,850 for the 2018-19 tax year and £12,500 for 2019-20.
After £100,000, your Personal Allowance drops by £1 for every £2 of your income and you don’t get any once your income reaches £123,700.
There is a way you can get it back, if your income is in this range. Making pension contributions can reduce your income for Personal Allowance purposes, giving you some or all of your allowance back.
As a higher-rate taxpayer, for example, you could benefit from 40% tax relief on what you pay in, and save tax by keeping your tax free allowance.
6. Pay your bonus into your pension and save tax
If you’re lucky enough to get a bonus from your employer then choosing to pay it into your pension means you could save on the tax and even NI (National Insurance) payments which would otherwise be paid.
It’s a tax-efficient way to boost your pension savings and could make your bonus work harder for you.
7. Pay into your pension and you could get your child benefit back
Worth over £2,500 a year to a family with three children, child benefit is reduced by the High Income Child Benefit Charge when one parent’s income reaches £50,000, and cancels out the benefit at £60,000.
Because making a pension contribution reduces what counts as your income, paying more into your pension could cut the tax charge if your earnings are around this level.
Moving pension savings from the parent who earns less to the higher-earning partner could also make a difference.
Find out more about the High Income Child Benefit Charge at Gov.uk.
It’s important to note that laws and tax rules may change in the future and your own personal circumstances will have an impact on tax. The information here is correct in February 2019 and shouldn’t be taken as financial advice.
If you’re in any doubt about your options, you may wish to speak to a financial adviser. There will likely be a cost for this.