The current tax year ends on 5 April 2021. See how to maximise your allowances from your savings to your pension pot and also get your head around some key tax terms.
Keep in mind, tax rules can also change and any benefits will depend on your individual circumstances.
How to make the most of your tax allowances
Use your ISA allowance before it’s gone
Remember, 5 April falls on a public holiday this year. And depending on the type of ISA you have, it may take a few working days to reactivate it, so please allow plenty of time.
Make the most of your junior ISA allowance
If you’ve opened a junior ISA for a child, you can save up to £9,000 in the 2020/2021 tax year without paying any tax on the interest you earn.
Maximise your pension contribution
Most people can add up to £40,000 to their pension pot each year, tax-free – or up to 100% of their earnings if they earn under £40,000 a year. This means the total sum of any personal contributions, employer contributions and tax relief can’t exceed the £40,000 personal allowance.
If you haven’t reached this limit, you may want to consider adding more to your pension from your pre-tax income. Keep in mind you might not be able to access this money until you’re at least 55 years old (or 57 from 2028). Find out more about tax relief on pension contributions.
Remember your capital gains tax allowance
You can sell investments, property and other assets in the 2020/2021 tax year without having to pay any tax on the first £12,300 worth of gains.
Keep in mind, you can’t carry over any unused capital gains tax allowance to the next tax year. So if you’re planning to sell assets that would make you more than £12,300 in profit, it might be worth staggering the sale over two tax years.
What is a tax code?
What is emergency tax?
If HMRC doesn’t have correct or sufficient information about your income, it may apply an emergency tax code. If this happens, you’ll pay tax on all your earnings above the personal allowance.
But don’t worry, emergency tax codes are temporary. Your employer can help you update your tax code.
What are tax credits?
Tax credits are extra funds given by the government. There are two types:
- working tax credits
- child tax credits
Find out if you should be receiving tax credits by contacting HMRC.
What is National Insurance?
As part of your annual tax summary, you’ll also see National Insurance (NI) contributions. If you’re over 16 and earn more than £183 a week from your employer or £6,465 a year if you’re self-employed, you’ll need to pay National Insurance.
These contributions go towards initiatives such as the State Pension, maternity pay and the Jobseeker’s Allowance.