With only a few weeks of the 2020/21 tax year remaining, I think it’s fair to say that most of us will be glad to see the back of it, and the upheaval and uncertainty that it brought. But, before we say goodbye (and good riddance) to 20/21, you should check that you’re not saying goodbye to any unused allowances that you may wish to utilise.
Dividend allowance
In the 20/21 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 This is irrespective of any other personal income that you may have in the tax year, so if you haven’t already withdrawn your tax free dividends, and if your company has the profit available, now is the time to do so.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.
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 20/21 this is £12,300 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.
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.
Since the introduction of the Personal Savings Allowance in 2016, having an ISA, for most, is no longer the most tax efficient way to save as, provided your interest does not exceed the above amounts for the year, no tax will be payable anymore. 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 20/21 is £20,000. This allowance can be split between the various types of ISAs, cash ISAs, stocks and shares ISAs, Lifetime ISAs etc.
Another thing to bear in mind with the Lifetime ISA is that this has its own separate rule as to how much you can pay in per year which is £4,000.
Pension allowance
Each year, each UK tax payer has an allowance of up to £40,000 (or possibly more if in the last 3 years you didn’t fully utilise your annual allowance) that can be invested into a pension.
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.
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