Act now to make the most of this year's allowances

There’s no need to wait until the end of the tax year, on 5th April 2021, to start making the most of the tax allowances on your savings and investments. Instead, start planning now.

Here are some of your main considerations.  

Top up your pension

Changes to the annual allowance on pension contributions - the limit on the amount you can contribute to your pension each year and still receive tax relief - were announced in the Budget in March, and come into effect for the current tax year, which started on 6th April 2020.

The vast majority can still pay in up to the level of their earnings, capped at £40,000 each tax year.

The complex ‘taper’ rules that restrict the amount that higher earners can pay into their pensions have been eased. Previously, those with incomes of £110,000 or more were potentially at risk of having their pension contributions restricted, this threshold is being increased to £200,000. 

Only those with ‘adjusted income’ (broadly income plus employer pension contributions) of £240,000 or more will see the amount they can pay in reduced.

There is a ‘sting in the tail’ for those with ‘adjusted income’ over £300,000 who could see their maximum pension contributions reduced below the current minimum allowance of £10,000                  

It’s useful to know too that you can carry forward unused allowances from the previous three tax years. 

Build an ISA nest egg

You can  invest up to £20,000 this year in an ISA, building up a nest egg free of UK Income tax and Capital gains tax.

The same tax benefits are available with Junior ISAs, which you can use to build up a pot of money for  a child or grandchild, which they can’t touch until they’re 18 years old. The maximum Junior ISA contribution has more than doubled this year, to £9,000.

At NFU Mutual, we have a range of products including ISAs and pensions for you or a child and can offer expert financial advice on finding the right ones for you. 

As Tracey in Hertfordshire, an NFU Mutual ISA customer since 2014, said: “Our adviser was brilliant, the product is reasonably flexible to invest with or take money from... have used the funds for specific purposes and now enjoy saving”.

Don’t forget inheritance planning

It’s wise to take a long-term view to inheritance planning, so you don’t pay more tax than you need to.

One way of doing this is to make gifts to your loved ones, taking advantage of an annual £3,000 gift allowance. Larger gifts are exempt from Inheritance Tax (IHT), as long as you live more than seven years from when you make the gift.

Tax planning is complex, so talk to an NFU Mutual financial adviser. Together we’ll review your financial goals and help you to understand your options.