March is here, and we can only hope that with it brings a departure to the many storms that we have been having in the UK recently, and the arrival of Spring. And with the arrival of Spring also comes the start of the new 2020/21 tax year on 6th April.
But, before we bid farewell to the old tax year, have you made the most of your allowances for 19/20? Now is the time to check!
Dividend allowance
In the 19/20 tax year, there is a tax free dividend allowance of £2,000. This is irrespective of any other personal income that you may have in the tax year, so if you haven’t already withdrawn your tax free dividends, and if your company has the profit available, now is the time to do so.
Any dividends over the tax free £2,000 (but still within the basic rate tax band) will be taxed at 7.5%, so it is also advisable that, company profit dependant, you also take advantage of this low rate of tax by withdrawing dividends within the basic rate band. Any dividends over and above this will be taxed at 32.5% in the higher rate tax band, and 38.1% in the additional rate tax band.
Pension allowance
Each year, each UK tax payer an allowance of up to £40,000 (or possibly more if in the last 3 years you didn’t fully utilise your annual allowance), or 100% of their relevant earnings, that can be invested into a
pension and receive tax relief.
If you pay into a pension personally, you will receive personal tax relief on this amount when you come to complete your self assessment return for the year.
If you pay into a pension directly from your company, your company will receive corporation tax relief on the amount paid as a tax deductible business expense.
ISA allowance
If you have a large amount of savings attracting a large amount of interest (over £1,000 for basic rate tax payers, or over £500 for higher rate tax payers), then it may be worth investing in a ISA.
Before 2016, an ISA was always your best bet if you wanted to invest and receive tax free interest. Then the Personal Savings Allowance was introduced meaning that as long as your interest received did not
exceed the amounts above, you would not pay tax on them. However, if you do receive interest in excess of these amounts, then it may still be worth investing and making use of your allowance for the year, which
for 19/20 is £20,000. This allowance can be split between the various types of ISAs, cash ISAs, stocks and shares ISAs, Help to buy ISAs etc.
Another thing to bear in mind with the Help to Buy ISA and Lifetime ISA is that these both have their own separate rules as to how much you can pay in per year (Help to Buy ISA is £200/month and Lifetime ISA is
£4,000/year). Please also note, Help to Buy ISAs are no longer available to open, so you can only save into one of these if you already have one set up.
Capital Gains Allowance
Any investment or funds including properties that aren’t your main residence are subject to this tax on disposal, and each year you receive a tax free allowance for such income. For 19/20 this is £12,000 which
can be used on gains before any tax is paid. The tax payable can be as high as 28% of the gain, and you are unable to carry over any allowance, so it is important that you plan the disposal of any assets taking this
into account.
So, if you haven’t checked already, make sure you’ve made the most of your allowances before we wave goodbye to 19/20.
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We offer our clients a flexible choice of fixed fee monthly packages which cover all of their accounting and tax needs (so no hidden costs or surprise bills!). All of our accounting packages include a monthly subscription for a cloud accounting software subscription provided by the awarding winning FreeAgent.
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