Financial Matters
With David Frederick FCCA | Marcus Bishop Associates | marcus-bishop.com
Tax Spring Clean As we are fast approaching the end of the 2020-21 tax year it is time to focus on some spring cleaning of our tax affairs. For some this may be addressing the mountain of tax planning things we’ve been intending to do since the fiscal year started. Perhaps the increasing anxiety and fear of a radical overhaul of many areas of taxation pending the Chancellor’s forthcoming Budget on 3rd March may or may not be the stimulus for action. Nevertheless four key areas for reflection are discussed below.
ISA An easy win for savers even at historic low interest rates is to make use of this year’s £20,000 ISA allowance, before 5 April 2021. Unused allowances cannot be transferred forward or backward. It is a standard use it or lose it. Minors or those saving on behalf of minors have a threshold of £9,000 for 2020-21. Taxpayers under 40 years old can still contribute £4,000 of their of their £20,000 ISA allowance into a lifetime ISA which receives an annual government bonus of up to £1,000 a year. This affords savers the option to use the lifetime ISA to buy a first home or fund retirement. Savers should note that penalties for withdrawals from their lifetime ISA were put on hold in 2020-21. Meanwhile savers currently utilising the help-tobuy ISAs can continue to save a maximum of £200 a month towards obtaining a mortgage for the first home purchase.
Pensions The maximum annual pension contribution is £40,000. This is subject to a tapered reduction where taxpayers have a threshold income over £200,000 and an adjusted income over £240,000. Threshold income is all UK earnings and not solely employment income. However it is net of all pension contributions paid personally to any UK registered pension schemes. Unused pension allowances from previous years can be carried forward for a maximum of three years. Taxpayers should also be aware that if in 2020-21 their pension savings exceeds their lifetime allowance of £1,073,100, they may be liable to income tax on when drawing pension benefits. 24 | SE22 - March 2021
IHT Gifts The inheritance tax (IHT) threshold remains unchanged at £325,000 with any excess being subject to 40% inheritance tax. However, some estates will qualify for an additional residence nil-rate band of £175,000, if the family home, or share of the family home, is left to the children or grandchildren. This will provide a threshold of £500,000. However, even this higher threshold is easily surpassed by many home owners within Dulwich. With this in mind, taxpayers with estates that will be subject to IHT, may want to consider whether their will is up to date. In addition, consider making use of their annual £3,000 gift exemption. Furthermore, taxpayers in this category should consider having an annual financial health check to ascertain whether they have surplus assets that they can give away and potentially reduce the value of their estate that is chargeable to inheritance tax.
CGT Capital gains tax is the tax of most consternation for the upcoming budget with rumours of rates hitting 40% or 50%. In advance of any changes which will take effect from 6th April 2021 at the earliest taxpayers can still use their 2020-21 annual exemption of £12,300. Civil partners and married couples can also take advantage of spousal transfer at nil rate, before a disposal. An additional area of focus applies to VAT registered businesses. From 1st April 2021, VATregistered businesses with a taxable turnover above the VAT threshold (£85,000) are required to comply with the Making Tax Digital rules. In short, they must keep digital records and use compatible software to submit their VAT returns.
