Knowing the various tax allowances and exemptions available in 2020-21 can help you maximise their use for your own individual financial planning. These are some of the numbers worth knowing:
The National Insurance threshold is now £9,500. The Personal Allowance has remained at £12,500, while the £50,000 higher-rate threshold remains unchanged in parts of the UK where Income Tax is not devolved.
Inheritance tax (IHT)
The current IHT nil-rate threshold is £325,000 for individuals and £650,000 for a married couple or civil partners. IHT is usually payable at a rate of 40% beyond these thresholds. 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 per individual.
A major attraction of paying into a pension is the tax relief available. This is 20% for basic rate taxpayers, 40% for higher rate and 45% for additional rate taxpayers.
The Annual Allowance for pensions has remained at £40,000. For those with an income above £240,000 (£200,000 threshold income plus the £40,000 you can save into a pension) the Annual Allowance begins to taper; 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.
From 6 April, the new single-tier State Pension increased to £175.20 per week and the older basic State Pension rose to £134.25 per week.
Individual savings accounts (ISAs)
The ISA allowance, including the Lifetime ISA allowance if used, remains unchanged at £20,000. 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. ISAs represent a tax-efficient way of saving or investing and the JISA is a great way of building up funds for your child.
The choice of tax-efficient products plays an important part in successful saving and investing, but it should not be the sole driver of your savings or investment decisions or steer you away from achieving your core goals.
Our advice will consider the sensible steps you can take to reduce the amount of tax you pay, safeguarding your wealth in the future.