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 2022, 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

The annual allowance on pension contributions - the limit on the amount you can contribute to your pension each year and still receive tax relief - was confirmed in the Budget in March, and applies for the current tax year, which started on 6th April 2021.

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 could pay into their pensions were eased last year. Previously, those with incomes of £110,000 or more were potentially at risk of having their pension contributions restricted, but the threshold remains at £200,000 this year.

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, which they can’t touch until they’re 18 years old. The maximum Junior ISA contribution is £9,000 this year.

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. 

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 they’ll review your financial goals and help you to understand your options.