Save yourself thousands in tax and claim all the breaks

NOBODY enjoys thinking about tax but with the end of the financial year exactly four weeks away on Sunday April 5, you cannot afford to postpone your end-of-year planning any longer.

You could shave hundreds or even thousands of pounds off your bill by claiming all of the 2019/20 tax breaks that are open to you.

Chancellor Rishi Sunak is set to deliver the new Government’s first Budget onwednesday but any announcements will have no impact on this financial year.

Prudential UK’S tax and pensions expert Les Cameron said do not expect fireworks when the Chancellor stands up, as any changes may not be set in stone until the autumn, while income tax rates, bands and allowances will not change: “The current amounts were announced in the previous Budget and those figures will also apply for 2020/21.”

This means you have no excuse for hanging around and should get cracking as soon as you can.

ISA TIME

An important step is to make full use of this year’s £20,000 Isa allowance. You can invest either in cash, or stocks and shares, and take all your returns free of income tax and capital gains tax, for life.

AJ Bell personal finance analyst Laura Suter said some may be wary of stock markets, given recent turmoil. Moving money into an Isa does not mean you need to invest it right away. Instead, you could leave it in a cash account temporarily, until turbulence calms and you feel more confident. “If you do not do anything, you will lose this year’s allowance forever,” she said.

Only invest in stocks and shares if you will not need the money for at least five years, ideally longer.

Suter said think twice before leaving money in a cash Isa for the long term, especially given today’s low interest rates: “To reduce risk in a stocks and shares Isa, diversify across countries, industries and sectors. Consider some exposure to safe haven gold, through funds such as Blackrock Gold & General or the Vaneckvectors Gold Miners ETF.”

Rebecca Bonner, senior adviser at accountancy firm The Private Office, said if you have children or grandchildren, consider investing in a Junior Isa on their behalf: “You can put away up to £4,368 this financial year free of tax. If the child is between ages 16 and 18, you can also invest up to £20,000 in a cash Isa. That will make a total tax efficient investment of £24,368.”

Those aged between 18 and 39 can pay up to a maximum £4,000 into a Lifetime Isa and claim a 25 per cent government-funded top-up of a maximum £1,000.

The aim is to help young people get on the property ladder but they can also use it to save for retirement. In that case, there is a penalty for touching it before age 60.

PENSION

You can claim tax relief on pension contributions and should consider acting before the tax year ends.

Andrew Tully, technical director at Canada Life, said you can pay in a maximum 100 per cent of your salary, or £40,000, whichever is lower, under the annual allowance: “This attracts relief at your marginal rate, either 20, 40 or 45 per cent, shrinking your tax bill for this year.”

You can even carry forward unused contributions from the previous three tax years.you can also invest up to £3,600 into a pension on behalf of a non-working spouse or a child and claim 20 per cent tax relief.

CAPITAL GAINS

Capital gains tax is charged on the profits when you sell assets, such as a second home.this tax year you can take up to £12,000 of capital gains without paying tax. Bonner said: “To use up any remaining exemption, make disposals by April 5.”

INHERITANCE TAX

You can gift up to £3,000 this tax year with the money instantly falling out of your estate for inheritance tax purposes. Couples can therefore give away £6,000.

Patrick Connolly, chartered financial planner at Chase de Vere, said you can mop up any unused allowance from last year: “Couples can therefore make up to £12,000 worth of exempt gifts before April 6 in total.”

You can also make unlimited smaller gifts of up to £250 free of inheritance tax, provided the beneficiary has not already benefited from the £3,000 allowance.you can give £5,000 tax-free when children get married, £2,500 to grandchildren and £1,000 to anyone else.

MARRIAGE ALLOWANCE

Married couples, where one partner pays standard rate income tax while the other earns less than £12,500 a year, should look to claim the marriage allowance.the lower earner can transfer £1,250 of their personal allowance to their spouse, reducing tax liability by up to £250.

Connolly said: “If you qualify, you can backdate your claim for up to four years and save up to £1,150.”

GIVE TO CHARITY

Remember to complete a Gift Aid declaration on charitable donations, which boost them by 25p for every pound given. Higher rate taxpayers can get tax relief themselves, with a 40 per cent taxpayer claiming 25p for each £1 donated.

‘Make full use of this year’s £20,000 Isa allowance and take all your returns free of tax for life’