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The new tax year is here: did you use up all your allowances?

Mike Wakeford

With the new tax year now upon us, any allowances that you used up in full during 2018/19 have been reset and you can now begin using them again.  

But, what if you have not managed to use all of your allowances?
In some cases, you are able to carry any unused allowances forward into the new tax year, where you are allowed to add them onto this year’s total, but in other cases, when allowances are not used in the previous tax year, they are lost.

If used appropriately, tax relief can be an important overall contributor to investment performance.

Money that is invested in ISAs does not incur capital gains tax or income tax on any investment growth or any bank interest, because of this, ISAs have become a more popular choice for investors who would like to benefit from tax efficient growth, but that also have flexibility to access their money when it is needed.

What is the annual limit for ISAS?
For the new tax year 2019/20, this limit stands at £20,000 per individual for a mainstream ISA.
With an ISA subscription, it is simply put, a ‘use it or lose it’ allowance. You are not able to carry the allowance across to this year, if you did not use all of it the year before.

Gifts to minimise Inheritance Tax
An individual is able to give up to £3,000 away per tax year which then immediately falls outside their estate for the purposes of calculating Inheritance Tax (IHT).

For this allowance, it can be carried forward by one year and this is as long as the current year’s allowance is fully used.

For inheritance tax you also have additional annual allowances for wedding gifts and you are able to make unlimited smaller gifts of up to £250 per beneficiary.

Pension contributions
For pension contributions, the annual allowance to UK pension schemes from all sources and including employer contributions stands at £40,000 for most people.

Contributions that are higher than the annual allowance will suffer a tax charge.

For those that have used up their entire annual allowance last year then you are now able to begin contributing again. If you have not used your full allowance last year or the two tax years before that, you may be eligible to carry these allowances forward and therefore make a substantial pension contribution this year.