Individual Savings Accounts (ISAs)

ISAs grow income and capital gains tax-free and are not taxed when withdrawn. An annual allowance of £20,000 can be invested by UK residents over 18.

Pension contributions

All UK residents are able to contribute up to £3,600 gross, £2,880 net per year regardless of income. If aged over 75 then no tax relief is available.  

However, the annual pension contribution capacity in 2020-21 is the lower of your relevant earnings and the annual allowance of £40,000 gross, equating to a £32,000 net payment.

If your adjusted income (generally, your total taxable income plus employer pension contributions) is over £240,000, then the annual allowance is tapered away by £1 for every £2 of income.  

It is important to review your pension contributions to see if there is scope to make additional contributions and utilise unused capacity brought forward from the three previous years.

Income Tax Planning

Personal income between £100,001 and £125,000 is taxed at an effective rate of 60%; this is due to the loss of the personal allowance. Personal income over £150,000 is taxed at 45%.

Individuals may be able to reduce the income being taxed at these high rates of tax by taking advantage of pension contributions or gift aid payments as well as potentially passing assets to your spouse. 

Capital gains

The majority of individuals have an annual CGT allowance of £12,300. Therefore capital gains on investments up to this amount are tax-free upto 5 April 2022.

One way of utilising the allowance is to sell and then buyback stocks and shares. This provides an opportunity to increase the base cost for future sales.  

Assets with a loss can be sold to reduce capital gains in the same tax year or they can be carried forward and set against future capital gains.

Inheritance tax (IHT)

An individual can make an annual gift of £3,000. This provides parents (and grandparents) with an opportunity to make tax-efficient gifts.

Individuals can also make as many small gifts of £250 per person as they like per tax year. This provides the opportunity of gifting £250 to each child or grandchild each and every tax year IHT-free.

Savings and dividend allowances

There is a personal savings allowance of £1,000 of tax-free interest for basic rate taxpayers, and £500 for higher rate taxpayers. This is a saving of £200 per person. 

The first £2,000 of dividend income is tax-free. 

Trading and property allowances

Two separate £1,000 tax-free allowances are available; one for trading and miscellaneous income, and another for income from property.  Where an individual rents out part of their main home, £7,500 of income from the letting will be tax-free due to rent-a-room relief.

Marriage allowance

Where one spouse is a basic rate taxpayer, and the other has income below the personal allowance, the latter can transfer 10% of their personal allowance to their spouse resulting in tax relief of up to £250 in the current tax year.