Planning ahead for the financial year end

16 February 2021 - Elizabeth O'Hanlon

The financial year end is approaching fast. If you haven’t already done so, these are some of the personal finance areas you should be checking:
 
Pension contributions
The maximum pension contribution on which tax relief can be claimed in any one year is £40,000, but if any funds are being withdrawn under a flexible drawdown arrangement, then the limit reduces to £4,000. This is intended to stop people recycling funds by claiming tax relief twice on the same contribution. In order to qualify for tax relief, the maximum personal contribution must not exceed 100% of pensionable earnings, though employer contributions would permit this limit to be exceeded.
 
Carry forward
Provided that the annual allowance for pension contributions has been used in full in any one year, it is permitted to carry forward any unused allowance from up to three previous years. The oldest unused relief must be carried forward first, and no allowance can be carried forward from years in which the scheme member was not a member of a registered pension scheme.
 
Pension lifetime allowance
The maximum sum which can be saved in a pension scheme over the course of a lifetime without incurring tax charges is currently £1,073,100. There may still be the ability to apply for protection against this test, but this is only in specific circumstances and so advice should be sought on this.
 
ISA allowance
The maximum amount which can be contributed to an ISA in 2020/21 tax year is £20,000. Ever individual is entitled to their own allowance, but unlike the situation with pensions, an unused ISA allowance cannot be carried forward. So it’s a case of ‘use it or lose it’!
Some providers now permit money to be withdrawn from an ISA and replaced in the same tax year without the payment being treated as a fresh contribution.
 
Capital Gains Tax
It is worth checking to ensure that the £12,300 exemption from Capital Gains Tax is used each year by both members of a married couple to shield gains on investments which are not held within a  tax-protected ‘wrapper’ such as an ISA.
 
Personal allowance
A similar principle applies to the personal tax allowance, currently £12,500 p.a.  When a taxpayer’s income exceeds £100,000 p.a., the personal allowance starts to be reduced, and it ceases to be available when income reaches £125,000. The effect is that income between these two levels is taxed at up to 60%. However, the thresholds will be reduced by the amount of any pension contributions.
 
Scrutton Bland’s financial advisers provide independent advice from across the whole market, and can guide you through the various options to fit your individual circumstances.

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