It’s well worth being aware of the tax allowances and exemptions available in 2020–21 to be able to maximise them for your own individual financial planning.
Here are a few figures worth knowing:
The National Insurance threshold is now £9,500. The Personal Allowance remains at £12,500, while the £50,000 higher-rate threshold remains unchanged in parts of the UK where Income Tax is not devolved.
A major attraction of paying into a pension is the tax relief available: 20% for basic rate taxpayers, 40% for higher rate and 45% for additional rate taxpayers.
The Annual Allowance for pensions remains at £40,000. It will begin to taper for those who have an income above £240,000 (the £200,000 allowance plus the £40,000 you can save into a pension). This means that for every £2 of adjusted income above £240,000, the Annual Allowance for that year reduces by £1. The minimum Annual Allowance has reduced from £10,000 to £4,000.
The Lifetime Allowance – the maximum amount you can have in a pension over a lifetime – has increased to £1,073,100.
Since 6 April, the new single-tier State Pension has risen to £175.20 per week and the older basic State Pension increased to £134.25 per week.
The annual amount you can save into a JISA (Junior Individual Savings Account) or Child Trust Fund has increased substantially, from £4,368 to £9,000. The ISA (Individual Savings Account) allowance, including the
Lifetime ISA allowance if used, remains unchanged at £20,000. ISAs represent a tax-efficient way of saving or investing and the JISA is a great way of building up funds for your child.
Inheritance Tax (IHT)
The current IHT nil-rate threshold is £325,000 for individuals and £650,000 for a married couple or civil partners. Beyond these thresholds, IHT is usually payable at a rate of 40%. The main residence nil-rate band, which applies if you want to pass your main residence to a direct descendant, has increased to £175,000 for individuals and £350,000 for a married couple or civil partners.
Whilst tax-efficiency can play a vital part in successful saving and investing, it’s important not to make it the sole driver of your savings or investment decisions, or to steer you away from achieving your core goals.
We can advise you on the sensible steps to reduce the amount of tax you pay, safeguarding your wealth for the future.
The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.