January through April is probably peak season for taxes with the self-assessment deadline being January 31st and the tax year ending on April 5th, thereby putting a metaphorical alarm clock on people wanting to make the most of any tax allowances for this tax year. With that in mind, here are four tax breaks you should try to use to the maximum before the clock runs out.
Your ISA allowance
You are allowed to replace any money you withdraw from your ISA provided that you do so in the same tax year, so if you have withdrawn any money, or even if you just haven’t made the most of your allowance, then make it a priority to do so. On a similar note, if you have a child/children under 18 and you haven’t made the most of their Junior ISA allowance, then you will need to take a decision about whether or not to do so. The issue of Junior ISAs is a little more complicated than the issue of ISAs for adults in the sense that the child takes full ownership of the funds in a Junior ISA as soon as they turn 18, meaning that they can do exactly what they want with it regardless of your opinion. If you would like the option to exercise at least a degree of control over how they use the money, then you will need to look at other options.
Your dividend allowance
You can receive up to £2000 of dividend income per year without paying tax on it so, depending on your situation, it may make sense to take dividend income even if you do not need it so as to make the most of your tax-free allowance.
NB: This is in addition to any dividends which you receive on shares held in an ISA wrapper.
Your capital gains allowance
At current time, you can receive profit from the sale of your main residence without paying capital gains tax on it, but you are only allowed to make £11,700 of capital gains from other assets before paying tax on it. This allowance can not be carried forward, so you must “use it or lose it”. This is where longer-term planning can pay dividends (no pun intended) since it could allow you to sell your assets in portions to make the most of each year’s allowance and still have the funds in place for when you need them.
Your gifting/gift aid allowance
You can give gifts of up to £3K per year (total not per person) without any risk of inheritance tax being levied should you die. Gifts of a higher value may be subject to IHT if you die within 7 years of giving the gift, however, even if they are, under current rules they may qualify for “taper relief” which basically means that the longer you live, the less tax you will pay. In this context, it’s important to note that to qualify for IHT relief, the donor has to give the gift unconditionally meaning that they cannot keep a beneficial interest in it, so, for example, if a parent wished to gift the family home to their child, they would then have to vacate the property or pay a market rent on it (on which the recipients would then have to pay income tax). They could not just continue to live in it rent-free. On a similar note, if you are having a post-Christmas declutter and donating items to (a registered) charity, ask for a supporter number so the charity can claim gift aid and you can claim tax relief on the donations.
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