There are many ways you can make the most out of your money by taking advantage of allowances, tax reliefs and ISAs before the end of the tax year. In this blog, we explore some of the options available to you, when looking at how to financially prepare for the new tax year, starting 6th April 2021.

Top up your ISA

Interest rates may be low across the board, but you can save up to £20,000 in an individual savings account, tax-free, annually. Some providers may lock your money away and provide fixed rates, while instant access ISAs allow flexible and easy access to your savings. Weigh up your options, shop around and find a financial service product that works for you. 

Remember, you can only pay into one account each year and you cannot roll over your £20,000 annual savings allowance. Martin Lewis provides digestible information on individual savings ISAs on his Money Saving Expert website. 

Use your Inheritance Tax gift allowance

While regular gifts for Christmas and birthdays are exempt from inheritance tax, larger gifts will be included in your inheritance valuations, but there are some exceptions each tax year that you should be aware of, to make the most of your gifts.

A gift is deemed on the Government website as 

“anything that has a value, such as money, property, possessions. A loss in value when something’s transferred, for example, if you sell your house to your child for less than it’s worth, the difference in value counts as a gift.”

You can find out more about gifts on the Government website. Your annual Tax Gift Allowance exemption allows you to give away £3,000 of gifts each tax year which is not included in the valuation of your estate. This exemption can be carried forward, but only for one year.

As for small gifts, you can give as many gifts of up to £250 as you like, provided you have not used another exemption on the same person. 

As stated on the government website: each tax year, you can also give away:

  • wedding or civil ceremony gifts of up to £1,000 per person (£2,500 for a grandchild or great-grandchild, £5,000 for a child)
  • normal gifts out of your income, for example, Christmas or birthday presents - you must be able to maintain your standard of living after making the gift
  • payments to help with another person’s living costs, such as an elderly relative or a child under 18
  • gifts to charities and political parties

You can use more than one of these exemptions on the same person - for example, you could give your grandchild gifts for her birthday and wedding in the same tax year.

For more information on inheritance tax gift allowance, visit the Government website.

Open a Junior ISA for your children

Junior ISAs are individual savings accounts, opened up on behalf of your child and can be opened by parents or guardians responsible for a child. You can save up to £9,000 a year, tax-free in individual savings accounts for children.

It’s important to remember that while you are able to manage the account, the money invested belongs to your child. They will automatically gain control of the account when they are 16 but will be unable to withdraw any funds until they turn 18 and legally become an adult. 

Find out more about opening Junior Savings accounts by visiting the Government website.

Each year, you can save a maximum amount of £40,000 towards your pension allowance, with the benefit of tax relief. This allowance applies across all of your pension schemes and includes any employer contributions or contributions from a third party.

Depending on your income, your annual allowance may be lower than £40,000. Tilney provides advice on how to understand your tapered pension allowance and the allowance changes following the 2020 budget announcement.

Give to charity 

Donations to charity are tax-free and can reduce your income tax bill. Aside from the financial benefits, being charitable during hard times is looked on favourably by prospective clients, consumers and fellow peers in the industry. Choose charities that are close to your heart so you can give back to the community in a way that changes the lives of others for the better.

Visit the Government website to learn more about charitable tax relief. 

Working through each of these aspects and utilising your allowances should help you get ready for the new tax year. Whether you’re a business owner or individual, it is always beneficial to use up all of your allowances before the end of the tax year to ensure you’re making your money work for you and you have your full allowances available for the new financial year.

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