Housekeeping for 2020/21
We have experienced an extremely turbulent end to the 2019/20 tax year and last week’s Round Up - All Possible Futures seems like a lifetime ago. Since last week we have seen:
- NHS Nightingale preparing to open its doors to those Coronavirus patients needing intensive care treatment.
- The Government writing off NHS Trust historic debt of over £13bn as part of a “major financial reset” for NHS Providers.
- The Treasury broadening its financial assistance package to Businesses and making support available to the self-employed.
- The proposed re-opening of talks between Saudi Arabia and Russia to address a deal to cut production – which has given support to oil prices that were at 20 year lows.
In amongst the daily news cycle, we should not forget to look to the forthcoming 2020/21 tax year to maximise tax efficiencies at the earliest opportunity. These tax efficiencies can take a broad form and there are some highlights below –
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Taxation
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Allowance/
Exemption
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Points to consider
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Income Tax
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Marriage Allowance
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- Transfer up to £1,250 of your Personal Allowance to the spouse with a higher income
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Personal Savings Allowance (PSA)
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- Allocating taxable savings to spouse or partners in a lower bracket of tax, will increase the Personal Savings Allowance available. I.e. Higher Rate PSA is £500 whereas Basic Rate PSA is £1,000
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Dividend Allowance
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- Consider how dividend producing assets are allocated to take advantage of the Dividend allowance of £2,000 per person
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Capital Gains Tax (CGT)
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Annual Exemption
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- Utilise the CGT Annual Exemption of £12,300 (2020/21) via a Bed & ISA or Bed & SIPP of investments held outside tax efficient wrappers
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Tax reduction
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- Where a taxable gain is likely to suffer CGT at the higher rate of 20%, it may be possible to move this gain into basic rate tax by making a personal pension contribution, which will extend the basic rate band by the value of the gross pension contribution
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Inheritance Tax (IHT)
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Annual Exemption
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- Individuals retain an annual gift exemption of £3,000 which may be rolled over for one tax year if the previous year’s exemption was unused.
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Small Gifts Exemption
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- Individuals may make gifts of up to £250 per individual per tax year, provided that recipient does not also receive part of the donor’s Annual Exempt amount
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Normal Expenditure
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- Any gift is exempt from IHT if it forms part of the donor’s normal expenditure and leaves the donor with sufficient income to maintain their usual standard of living
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We must also not forget the use of Tax-Efficient wrappers –
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Wrapper
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Allowance
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Points to Consider
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ISA
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£20,000
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- Funds held within ISAs are not subject to Income Tax or CGT
- It is also possible to inherit a deceased spouse’s ISA allowance, which is based on the value of the ISA they held at the date of death.
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Junior ISAs (JISAs)
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£9,000
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- This allowance has increased significantly from £4,368.
- As with standard ISAs, funds within JISAs are not subject to Income Tax or CGT
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Pensions
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£40,000
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- This is the total amount of contributions permissible to a pension in a single tax year, for tax relief purposes. This figure may differ depending on whether you are subject to the Tapered Annual Allowance or the Money Purchase Annual Allowance (MPAA)
- Ps don’t forget to review previous three years contributions as you may be able to ‘Carry Forward’ the unused allowance.
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If you have any queries regarding the above or any strategies that might help you to achieve your goals, please do not hesitate to contact us.
