Plan, Prepare - New Year's Tax Saving Resolutions
As you think about New Year’s resolutions it’s also a good time to start planning your tax affairs before the tax year end on 5 April. Tax planning might not sound exciting, but can have a dramatic effect on your personal finances. It’s one part of meeting your financial goals. Take action now and it may give you the opportunity to take advantage of appropriate reliefs, allowances and exemptions before 5 April 2020.
While some people avoid making New Year’s resolutions for fear they’ll break them, people who make financial New Year’s resolutions are more likely to end 2020 in better financial shape than when they began.
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We’ve provided some of the main areas you may wish to discuss with us, if appropriate to your particular situation.
Topping up your pension
Pensions are now more flexible than ever and remain extremely tax-efficient. If you’ve used your full allowance in the current tax year but not in recent years, you might be able to ‘carry forward’ any annual allowance that you haven’t taken in the three previous tax years.
A pension is a long term investment, the fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation.
Taking your ISA to the max
One of the easiest ways to reduce your tax bill is to shelter any returns above your allowances in an Individual Savings Account (ISA). Cash and the Stocks and Shares versions remain the most popular choices, each having distinct benefits.
The value of investments and the income from them may go down. You may not get back the original amount invested.
Getting personal with allowances
Your personal allowance is in addition to the Personal Savings Allowance (PSA). Since April 2016, savings interest has been paid tax-free, meaning most savers no longer have to pay Income Tax on the savings income they receive. Investors also have a dividend allowance.
Keep inheritance in the family
Your estate is valued when you pass away and chargeable to Inheritance Tax (IHT) at 40%, although the first £325,000 is typically exempt, as is anything that goes to your spouse. Those with children/grandchildren can also benefit from an additional family home allowance.
Regular gifts could be made free of IHT as well, depending on your circumstances.