After a rough start to the year – with damaging storms, Brexit and now the Coronavirus outbreak, as GP’s and Medic’s, you’d be forgiven if thoughts of the budget and end of the tax year are not at the forefront of your mind!
I know, as a financial adviser, this time of year my mind is always focused on my clients, to ensure they utilise their tax-efficient allowances and are prepared for the end of the tax year. I become quite obsessed – while I am not suggesting you become as obsessed by it as I am, I would, however, encourage you all to try and take some simple steps this March to ensure the passing of this financial year is smooth, worry-free and works to your advantage.
Prioritise these 9 tax-saving opportunities to set yourself up ‘financially’ for an excellent 2020/21.
1. Use your ISA allowance
Everybody has an ISA allowance of £20,000 for the 2019/20 tax year. Your children have their own allowance of £4,368 each p.a. too. If you aren’t aware of the different types and want to get up to speed quickly why not take a look at our recent ISA article: Are you up to speed with ISA’s >
Of course, you do have another ISA waiting for you in the next tax year but if you don’t use this one you WILL lose it!
There are very few things in this world that are tax-free, so making the most of your annual tax-free ISA allowance is an opportunity no-one should miss if they can help it.
While you’re at it, why not set up a regular monthly payment into your ISA for the next tax year? If nothing else, it’ll mean one less thing to do this time next year!
2. Reduce your inheritance tax bill
All doctors and dentists can give away £3,000 a year without any inheritance tax liability. If you didn’t use your £3,000 gift limit last year, you can carry this forward and gift a total of £6,000 inheritance tax-free this tax year.
And that’s not all. You can gift:
- As many small gifts of £250 as you like.
- £5,000 to your children when they get married or enter into a civil partnership.
- £2,500 to your grandchildren when they get married or enter into a civil partnership.
- £1,000 to anyone else when they get married or enter into a civil partnership.
Now is the time to use as many annual exemptions as you can to reduce the value of your overall estate, and minimise the amount of inheritance tax your family will have to pay when you die.
3. Use your Capital Gains Tax (CGT) exemption allowance
Every adult has an annual CGT exemption allowance of £12,000 per person (so £24,000 a couple). Stocks and Shares ISAs and your main residence are exempt from capital gains tax, but other valuables over £6,000, stocks and shares outside of ISAs, and other properties are all liable for CGT.
You can’t carry over your capital gains tax allowance into the next year either. Once the tax year ends, your CGT allowance for that year is gone forever. It’s an expensive missed opportunity if you don’t use at least some of your CGT allowance each year.
4. Use your Annual Investment Allowance if you’re a sole trader
Self-employed doctors and dentists are classified by the HMRC as ‘sole traders’. Sole traders can make use of an Annual Investment Allowance (AIA) which allows you to make capital purchases and gain tax relief. This can include the purchase of phones and computers that you use to benefit your business.
Exactly what is and isn’t allowed in your AIA can be a bit of a grey area, so you’d be wise to get your skates on and check with your accountant. You never know, there may be an eligible purchase you can include in this year’s allowance.
5. Check your tax code
If you’re a doctor or dentist employed in a single role, your tax code should, in theory, be correct, yet in reality, it isn’t always.
If you’re self-employed or have more than one job, making sure you are on the right tax code is much more complicated.
Whatever your employment status is, it’s worth checking your tax code and seeking advice if you want to be sure it’s correct.
6. Use your personal savings allowance
In addition to your ISA allowances, basic and higher rate taxpayers also have a personal savings allowance. It means you can earn a certain amount of interest on any non-ISA savings you have, without having to pay tax:
- For basic rate taxpayers, your personal savings allowance is £1,000 a year.
- For higher rate taxpayers, your personal savings allowance is £500 a year.
Sadly, additional rate taxpayers do not have a personal savings allowance.
7. Save for your children
With the Junior ISA allowance for 2019/20 sitting at £4,368 your children will thank you one day if you make use of this valuable tax-efficient long-term savings plan.
Even if you’re not able to put aside the full allowance, whatever you save into a cash Junior ISA will benefit from compound interest for many years and be a wonderful windfall for your children in the future. Compound interest is one of the benefits of cash! It could even help fund their university fees! If you are lucky enough to be able to save in excess of this for your children there are some excellent savings accounts around or you could do really long term and pay into a pension for them!
8. Check if you have any pension allowance issues
If you don’t know what your annual pension allowance or your lifetime pension allowance is, let alone whether or not you’re likely to breach either or both, it’s time to speak to a specialist, such as Legal and Medical so that you can get to grips with your pension. Don’t assume they don’t affect you!
At the time of writing some big changes are being mooted in the Budget on 11th March so check out our budget summary and see how they will affect you!
9. Use your dividend allowance
Currently, a tax-free dividend allowance of £2,000 applies to individuals. Any dividends you earn above this £2,000 limit will be taxed at 7.5% (basic rate), 32.5% (higher rate), and 38.1% (additional rate).
You should also note that:
- Dividends received by pensions and ISAs are not included.
- Dividend income is treated as the top band of income.
- If you receive dividends of more than the limit and you are a basic rate taxpayer, you need to complete a self-assessment tax return.
So there you have it – there are lots of things to consider!
Look out for our post-budget summary on how, or if any of the changes announced will affect you!
In the meantime don’t hesitate to get in touch!
Have you planned financially for the end of the tax year? Let us know by adding a comment below