Make sure you use all your allowances before the end of the tax year

There’s still time to ensure you don’t overpay your tax this financial year, says Ruth Jackson-Kirby - but make sure you use all your allowances

The 2020-2021 tax year will end at midnight on 5 April. You have until then to make the most of the allowances designed to help you reduce how much tax you pay. Make the most of all of them and you can shield thousands of pounds from the taxman every year.

Every tax year adults can put up to £20,000 in an individual savings account (Isa). This money can then grow tax-free forever – or until you withdraw it. But you must deposit your cash into an Isa before midnight on 5 April otherwise this year’s allowance is gone, and you are eating into your 2021-2022 allowance instead. 

The top cash Isa rate

If you are looking for a last-minute home for your allowance the simplest option is to put it in an instant-access cash Isa. You can then transfer it into another cash Isa or a stocks-and-shares Isa at your leisure. 

The best rate available on an instant-access cash Isa at present is 0.4% with Nationwide, Paragon or Charter Savings Bank’s instant Isas. These accounts can be opened online. Once you’ve sorted out your own Isa allowance think about your children. 

Everyone aged under 18 can deposit up to £9,000 per tax year into a Junior Isa (Jisa). That money can then grow tax-free. The best Jisa rate available for cash is 2.25% from Tesco Bank and Coventry Building Society, both online accounts.

Use your marriage allowance

Now is also a good time to consider whether you can make use of the Marriage Allowance. If you don’t earn enough to have to pay income tax, and your spouse or civil partner is a basic-rate taxpayer, you can transfer £1,250 of your personal allowance (that’s how much you can earn tax-free each year) to your partner. This means they can then save around £250 a year on their tax bill. The allowance can be backdated by up to five tax years. So, if you were married in the 2016-2017 tax year and one of you wasn’t paying tax then you have until midnight on 5 April to claim the marriage allowance.

Every tax year you can also pay up to £40,000 into your pension and enjoy tax relief on that contribution. Keep in mind, however, that the lifetime allowance on pensions has been frozen at £1.073m until 2025-2026 so make sure there is no risk of you breaching that. If the value of your pension does exceed the lifetime allowance you’ll be taxed at between 25% and 55% on the excess amount when you come to access your savings.

Use your capital gains tax allowance

Finally, think about capital gains tax (CGT). We each get a £12,300 CGT allowance per tax year. This can’t be carried over to the next year if it goes unused. If you know you are going to be selling assets that will take you over the allowance consider whether you can sell some of them this tax year and some next to avoid CGT. The usual rates range from 10% to 28% depending on your tax bracket and the type of asset being sold. 

Recommended

The uranium price is soaring – here’s the best way to play it now
Energy

The uranium price is soaring – here’s the best way to play it now

Uranium, the key ingredient to nuclear power, has been ignored since the bubble of 2006, but now the uranium price is rising again. Dominic Frisby exp…
22 Sep 2021
I wish I knew what contagion was, but I’m too embarrassed to ask
Too embarrassed to ask

I wish I knew what contagion was, but I’m too embarrassed to ask

Most of us probably know what “contagion” is in a biological sense. But it also crops up in financial markets. Here's what it means.
21 Sep 2021
Why is the UK short of CO2 and what does it mean for you?
UK Economy

Why is the UK short of CO2 and what does it mean for you?

The UK is experiencing a carbon dioxide shortage that could lead to empty shelves in supermarkets. Saloni Sardana explains what’s going on and how it …
21 Sep 2021
What to invest in to beat soaring energy prices
Investment strategy

What to invest in to beat soaring energy prices

As gas and electricity prices hit the roof, John Stepek explains how to invest to offset higher energy bills.
21 Sep 2021

Most Popular

The times may be changing, but don’t change how you invest
Small cap stocks

The times may be changing, but don’t change how you invest

We are living in strange times. But the basics of investing remain the same: buy fairly-priced stocks that can provide an income. And there are few be…
13 Sep 2021
Two shipping funds to buy for steady income
Investment trusts

Two shipping funds to buy for steady income

Returns from owning ships are volatile, but these two investment trusts are trying to make the sector less risky.
7 Sep 2021
How to stop recurring subscriptions becoming a drain on your money
Personal finance

How to stop recurring subscriptions becoming a drain on your money

Tracking and pruning subscriptions isn’t as easy as it sounds. Here's how to take charge.
14 Sep 2021