New Tax Year, New Opportunities: How to use your tax allowance during the coronavirus-crisis

Amid the market mayhem caused by the coronavirus, it’s been easy to forget that a new tax year has just begun and that means that your investment and savings allowances have been reset.

During the most painful sell-off in over a decade, the temptation might be to steer clear of the stock markets. But the current turbulence shouldn’t put you off making the most of the tax breaks that come from using up your allowances. Remember use it or you lose it.

Following the Chancellor’s delivery of the Spring 2020 Budget on 11^th March 2020, we have summarised the key financial planning changes below.

Tax relief on pension contributions  

Those earning around or below the level of the personal allowance and saving into a pension may benefit from a top-up on their pension savings equivalent to the basic rate of tax, even if they pay no tax.

Whether they receive this top-up depends on how their pension scheme administers tax relief. Essentially those paying contributions via the Net Pay method (usually company schemes) don’t get the top-up which is in contrast to those making the contribution to a private pension that operates the relief at source method.  The employee is therefore losing out on basic rate tax relief if making pension contributions via Net Pay in these circumstances.  The government has committed to reviewing options for addressing these differences.

Pension lifetime allowance

The lifetime allowance (LTA) has increased in line with CPI for tax year 2020-21 to £1,073,100.

This £18,100 increase could help reduce or eliminate the LTA charge which would have applied if benefits were crystallised in the 2019-20 tax year, for those who don’t have a protected LTA.

Inheritance Tax

The Budget didn’t include any mention of changes to inheritance tax although this is still expected at some point in the near future. The nil rate band will stay at £325,000 and the residence nil rate band (RNRB) has made its final (larger than inflation) increase to £175,000 from 6 April 2020. Both bands are expected to increase with CPI inflation from April 2021 onwards.

CGT Annual Exempt Amount

The annual exempt amount for capital gains tax is increased annually in line with increases in the Consumer Prices Index, consequently, the annual exempt amount for the year 2020 to 2021 has increased to £12,300 for individuals and personal representatives. This figure is halved Trusts, unless the trust’s Settlor set up more than one trust which would reduce that exemption further.

Entrepreneurs’ Relief – reduction in the lifetime limit

Legislation will be introduced in Finance Bill 2020 reducing the Entrepreneurs’ Relief lifetime limit to a maximum of £1 million. 

Junior ISA and Child Trust Funds

While the ISA allowance has been frozen at £20,000, the amount families can save into a Junior ISAs (JISAs) and Child Trust Funds (CTFs) has been more than doubled from 2020-21, increasing from £4,368 to £9,000. This increase will help with those looking to increase gifts to minor children in a tax efficient way

Income Tax

The majority of income tax bands, rates and allowances are remaining the same for 2020/21. The personal allowance remains at £12,500 (with reductions applying once adjusted net income exceeds £100,000).

If you’d like to seize the opportunity of the New Tax Year and discuss your personal circumstances with one of our financial advisers, then please visit the website to make a call or book an online meeting today. Why put off until tomorrow what you can do today?

Contact us at any time. We are hear to help on all matters of financial planning no matter how small.