Whilst we would all probably agree that paying tax goes towards providing the important services we all rely on, no one needs to end up paying more than their fair share. Each year, the government announces the tax allowances and exemptions that we are entitled to and it makes sense to maximise their use in meeting our individual financial goals.
Here are a few figures worth knowing:
At the Budget, the Chancellor’s main change to personal taxation was an increase in the National Insurance threshold to £9,500, which will save most workers around £100 each year. The Personal Allowance was frozen at £12,500, while the £50,000 higher-rate threshold remains unchanged in parts of the UK where Income Tax is not devolved.
One of the key attractions of paying into a pension is the tax relief available, 20% for basic rate taxpayers, 40% for higher rate and 45% for additional rate taxpayers. The Annual Allowance for pensions in the 2020/21 tax year remains at £40,000.
From 6 April the Annual Allowance will begin to taper for those who have an income above £240,000 – the £200,000 allowance plus the £40,000 you can save into a pension. It means that for every £2 of adjusted income that goes over £240,000, the Annual Allowance for that year reduces by £1. The minimum Annual Allowance reduced from £10,000 to £4,000, affecting those with an income over £300,000.
The Lifetime Allowance – the maximum amount you can have in a pension over a lifetime – increased on 6 April to £1,073,100. Increases to State Pensions since 6 April see the new single-tier State Pension rising to £175.20 and the older basic State Pension increasing to £134.25 per week.
A major announcement for savers at the Budget was a substantial increase in the JISA (Junior Individual Savings Account) allowance and Child Trust Fund annual subscription limit from
£4,368 to £9,000. The ISA (Individual Savings Account) allowance, including the Lifetime ISA allowance if used, was left unchanged at £20,000. ISAs represent a tax-efficient way of saving or investing and the JISA is a great way of building up funds for your child.
For individuals, the current IHT nil-rate threshold is £325,000, and £650,000 for a married couple or civil partners. Beyond these thresholds, IHT is usually payable at a rate of 40%. The main residence nil-rate band, which applies if you want to pass your main residence to a direct descendant, increased to £175,000 on 6 April.
Tax planning involves taking sensible steps to reduce the amount of tax you pay. Whilst tax-efficiency can play a vital part in successful saving and investing, it’s important not to make it the sole driver of your savings or investment decisions, or to steer you away from achieving your core goals.
The value of investments and any income from them can go down as well as up and you may not get back the original amount invested.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.