Which Tax Allowances Can’t be Carried Forward in 2021?
As it is the middle of February there are now less that two more months to utilise your ‘use it or lose it’ tax allowances. Below are listed the 5 most common tax allowances that cannot be carried forward and so will be lost if not used by 6th April 2021.
1. ISA Allowance
Everyone has an allowance of £20,000 to invest in an ISA for the 2020/2021 tax year. As ISAs offer tax-exempt growth and withdrawals, this is usually the first allowance to be used. It may be sensible to consider whether other less tax-efficient investments could be encashed to generate funds to use the ISA allowance. Don’t forget, this allowance is the maximum allowed per tax year across all the ISAs & LISAs, products that you have.
This year in particular is a good time to review your Cash ISA arrangements and the rates you are getting. While interest rates remain at record low levels, we are continuing to see a strong recovery in equities on the back of the pandemic and this represents a real opportunity for growth.
We all know that ISA’s are one of the most tax efficient investment vehicles in the UK, but for many of us, this ISA allowance becomes wasted when we invest in Cash ISA’s. Why use an investment product like an ISA which benefits from tax free growth and then invest it in a Cash ISA which is hardly growing?
Maximising the tax-free growth of ISA’s, means for many of our Clients, they we will want to target growth over and above bank interest rates. To help achieve this, we are very pleased to offer our Direct Offer Service. This allows you to transfer any Cash ISA’s you have quickly and simply into a Stocks & Shares ISA inside your existing True Potential Portfolio.
This service is completely free of charge with no initial fee from ourselves, just our On-going Service Fee of 0.75% per annum. If you are not currently a Redwood Client and would like our help to transfer your Cash ISA(s) for free, submit our Contact Us Form and request an ISA Transfer Form, or call 01489 877 547 and we will arrange to send one out to you.
2. Personal Allowance
This tax year the maximum personal allowance is £12,500, though the amount will vary between individuals. Whatever your personal allowance, do not miss out on using it. If you are planning any taxable withdrawals it may pay to bring them forward, or withdraw up to your taxable allowance and invest it into your ISA.
3. Annual Allowance
You can usually invest a maximum of £40,000 (or the maximum of your total earnings, if lower) into a pension arrangement each tax year, providing you have not accessed your taxable benefits previously. It is also possible to carry forward an additional 3 years of allowance if you do not use it – but there are rules around this so get in touch with us before you take action.
4. Capital Gains Allowance
Each tax year you can crystallise gains up to the annual exempt amount with no CGT to pay, this year (2020/2021) it is £12,300. Where losses have been realised in the same tax year these offset any gains before the exempt amount. If no gains were crystallised this tax year, then the loss can be carried forward and offset against gains in future years. But remember you can only carry forward losses, not the actual allowance!
5. Inheritance Tax Exemptions
An individual has an annual exemption for lifetime transfers of £3,000 per tax year, which can be given away to anyone. This can be carried forward one year, so if you didn’t make a transfer last year you could give away £6,000 this year. There are more IHT exemptions, the details of which you can find here.
Contact Redwood Financial for Advice
Please note that this blog article is not advice and does not mean that using these allowances is right for you. If you want further information on any of the above, or think you have allowances that aren’t being used, please contact us and one of our advisers can provide bespoke advice tailored to your situation.