More important things to think about really!

The last few weeks of the necessary lockdown has seen significant change for most of us. Scary times for many, with a great deal of uncertainty for most.

With Easter around the corner, the distinction between school and home is not at all clear this year, with educational institutions closed, children at home and those who can working from home as well. However, that tax stuff does not stop, and we have now moved into the new tax year 2020/2021 (starting 06 April 2020).

We had the Budget on 11 March 2020. This initial position has been subsequently and significantly updated to meet the immediate needs of the country in the face of the coronavirus outbreak. Behind the scenes, though, a raft of Budget documentation clarified the plans and allowances for the new tax year. The 'devil is in the detail' as some might suggest!

If you have some time on your hands, it might be a great time to think about using your annually renewed tax allowances early in the tax year, so that you can enjoy the summer without any concern about missing any allowances as the tax year progresses.

So, we've added a few examples of the new tax allowances for this new tax year 2020/2021:

Standard Annual Allowance

Amount

Individual Savings Account (ISA)

£20,000

Junior ISA (JISA) and Child Trust Fund (CTF)

£9,000 (a significant increase)

Capital Gains Tax Allowance

£12,300

Annual Gift Allowance (for inheritance tax purposes)

£3,000

(You can go back one year if you did not use the tax year allowance in 2019/2020)

Pension Contribution

£40,000 gross from all sources

(The limit may be higher or lower than this amount dependent on your individual circumstances – see below)

Personal Income Tax Allowance

£12,500 gross

Personal Savings Allowance

£1,000 gross for basic rate tax payers

£500 gross for higher rate tax payers

Nil for additional rate tax payers

Dividend Allowance

£2,000 gross

Tapering of annual allowance for higher earners

The tapered annual allowance for pension contributions means for those on the highest incomes, the standard annual allowance of £40,000 from all sources tapers down. The threshold at which tapering starts has been raised by £90,000 in the new tax year, meaning that from the tax year 2020/2021 the 'adjusted income' will be £240,000 (£150,000 in 2019/2020) and 'threshold income' will be £200,000 (£110,000 in 2019/2020). The minimum level to which the annual allowance can taper down has reduced from £10,000 to £4,000 gross from April 2020.

This change may provide significant new scope for higher earners to fund their pensions, subject to their overall Lifetime Allowance. This is a complex area and higher earners will need to take advice.

Lifetime Allowance for pension benefits

For reference, the Lifetime Allowance for pension benefits - the maximum that someone can accrue in registered pension schemes in a tax-efficient manner over their lifetime – has increased to £1,073,100 in 2020/2021, in line with CPI.

Finally...

Many will understandably have greater concerns than this year's tax opportunities; however, we hope the notes above are helpful in detailing some of the examples of allowances that can be used looking forward.