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Depending on your situation, a few simple steps could have a big impact on your wealth – and the wealth of your loved  ones. Below we’ve compiled a list of nine tips to lower your tax bill, preserve your benefits and protect the people you love.  

Note, this blog post is intended as guidance-only and should not be taken as financial advice. If you are seeking financial advice, you can book a free initial call with one of our in-house advice team now. 

Make the most of your ISA allowance

There really is good reason to use as much of your ISA allowance as you can. In the current tax year, a maximum of £20,000 can be put away tax free across different types of ISAs: cash, stocks and shares, Innovative Finance and Lifetime ISA. You’ll get another allowance in the next tax  year,  but your current allowance won’t roll over.   

Once in an ISA, your money is tax-free for life. That means that however much you accumulate, you’ll never pay tax on income or capital gains from your ISA investments, which you might have to do if you invested that money in a different kind of account.  

Throw what you can afford into a pension

Setting up a pension might be easier than you think. Plus, set up a pension and you can potentially benefit from tax relief, even if you’re self-employed or not working at all. Thanks to tax relief on pension contributions, adding to your pension with a lump sum can be one of the most rewarding investments you can make.  

If you have a “relief at source” pension, as we offer at Nutmeg, your contribution is automatically topped up with an extra 25% in the form of tax relief from the government. So, for example, an investment of £100 turns into £125 once in a pension. The extra money is effectively a refund of the basic rate tax you’re assumed already to have paid. If you’re a higher rate or additional rate taxpayer, the tax “refund” is greater – you can claim back the difference on your tax return.  

In the current tax year, you can potentially invest up to £40,000 in your pension. Unlike your ISA allowance, you  can  carry forward your pension allowance – for up to three years provided  certain conditions are met  – but be aware that your pension contributions in a year aren’t allowed to exceed your yearly income or the £40,000 annual allowance, depending on which is lower.  

Be charitable – it could be  in  your interest

Charitable donations have something in common with pension contributions – they’re  also eligible for tax relief.  By signing  a  Gift Aid  declaration, which  allows charities to claim  25%  from the government  on top of your donation, you  effectively  access the same benefit  as when Nutmeg  adds  25%  to your pension contributions.   

As with pensions, higher rate and additional rate taxpayers are eligible for a larger  tax refund, though you’ll have to  add up  what you’ve  given over the year and declare it on your tax return.  Services such as  Just Giving  should be able to show you a record of your donations.  

One way to think about both  charitable donations  and pension contributions is that they reduce your  adjusted  income,  which is  the portion of your income  you must pay  income  tax on.  For example, if you earn £60,000 and  give £10,000 to charity  (or to your pension), your  adjusted  income would fall to £50,000,  currently  the upper limit of the basic rate tax band.  

Protect your eligibility  for  child benefit

If you  have an adjusted income of  more than  £50,000, the  payment  you  or your partner  can  gain  from child benefit is reduced by a  levy called the  high income child benefit tax charge*.  

To  protect eligibility for child benefit, which is currently worth  £20.70  a week for your eldest child,  you might want to consider paying into your pension or making charitable donations before the end of the tax year. These and other methods can bring your adjusted income  down  into the basic rate tax band.  

The government’s  child benefit tax calculator  can help you work out if you are affected  by the  high income  child benefit tax charge.   

 Make use of your dividend allowance

This allowance may affect you if you are a shareholder or director  of a company, or if you invest in shares outside of an ISA.  

You can earn dividends  –  payments made  to shareholders from a company’s profits  –  of up to £2,000 in the current tax year  without paying tax  on them. The  threshold used to be £5,000, but was  cut to its current level from the 2018-19 tax year.  

Everyone gets the same dividend allowance, regardless of  your  other income, but for dividend income over the tax-free threshold, the tax rate depends on your income tax band.  Avoiding higher rate tax on dividends is potentially another reason to reduce your  overall  taxable income, for example with  pension contributions  or charitable giving.  

Cut your capital gains tax by sharing

If your only  substantial  investments are in an ISA or pension, you may not have  to worry about capital gains tax. But if you have  other assets  including, for example,  company shares, a second home or  valuable artworks, you should pay attention to your yearly capital gains tax allowance, which is currently  £12,000.  

You  may be liable for  capital gains tax  if you sell or otherwise “dispose” of  assets  at a profit.  For this reason, it may be worth spreading  the  disposal  of large assets over different tax years to stay within the threshold.  

If you have a spouse or civil partner, you can give assets to them  without incurring capital gains tax,  providing some conditions are met.  That  means  they can  effectively share  their  capital gains tax allowance with you.  

Use the marriage allowance

You might have noticed that married couples and civil partners have access to a  few tax benefits that others don’t have. Here’s another.  

If you  earn less than the personal tax allowance, which is £12,500 in the current tax year, and  you are married or in a civil partnership with someone whose income is in the basic rate  tax  band, then you can  transfer up to £1,250 of your personal allowance to them**.  That addition to their tax-free allowance will potentially save them £250 a year.   

Accessing the marriage allowance is another reason why someone might use pension contributions, charitable giving and other means to reduce their adjustable income to within the basic rate tax band.  

You can  apply for the marriage allowance online.   

Give gifts  tax free

You can lower  your inheritance tax bill by giving  your  heirs some of  the  money now, rather than  leaving all of it as a  taxable lump sum when you pass away.  

This  may seem a bit  morbid,  but  this method  is considered good practice when it comes to financial planning.  Each year, everyone  is allowed to  give  away up to  £3,000  worth of gifts without them being added to the value of your estate. That means  you can be sure  these gifts won’t be affected by inheritance tax after you die.  

Some other types of gifts are  also  exempt  from inheritance tax, for example wedding or civil ceremony presents.  

If you are  thinking about  inheritance tax  planning  and  think your estate will be liable,  make use of these exemptions  before the end of the tax year.  Gifts that aren’t exempt may  incur inheritance tax if you die within seven years, in which case  the recipients may be required to give  back some of the value of the gift  to the taxman.  

Set up a Junior ISA

Invest  up  to  the yearly maximum  in a Junior ISA and  help to give the children in your life a generous gift when  they come of age.  

University, a first car, a first home – there are lots of expenses young adults face. You can help the  children  in your life  pay these costs  by investing money in a Junior ISA on their behalf. At 16, they  can begin managing the funds themselves and, at 18, they can with draw  them  if they choose.  

The  Junior ISA yearly allowance, currently  £9,000,  is like the adult ISA allowance. It won’t roll over.  Your child will get another allowance in the next tax year,  but if you want to maximise  the value of the investment,  use up this year’s limit before 5th  April.  

*You may also have to pay the charge if  someone else  gets child benefit for a child living with you  and they contribute at least an equal  amount towards the child’s upkeep.  

**If you or your partner were born before 6 April 1935, you  might better off  applying for  Married Couple’s Allowance  instead.  

Risk warning  

As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest. Past performance is not a reliable indicator of future performance. A stocks and shares ISA may not be right for everyone and tax rules may change in the future. If you are unsure if an ISA is the right choice for you, please seek financial advice. 

A stocks and shares Lifetime ISA may not be right for everyone. You must be 18–39 years old to open one. If you need to withdraw the money before you’re 60, and it’s not for the purchase of a first home up to £450,000, or a terminal illness, you’ll pay a 25% government penalty. So you may get back less than you put in. Compared to a pension, the Lifetime ISA is treated differently for tax purposes. You may be better off contributing to a pension. If you choose to opt out of your workplace pension to pay into a Lifetime ISA, you may lose the benefits of the employer-matched contributions. If you are unsure if a Lifetime ISA is the right choice for you, please seek financial advice. 

The value of your Junior ISA can go down as well as up and you may get back less than you invest. To open a Nutmeg JISA, your child must be under the age of 16 and funds cannot be withdrawn until your child turns 18. Tax treatment depends on your individual circumstances and may be subject to change in the future. If you are unsure if a Junior ISA is the right choice for you and your child, please seek financial advice.  

A pension may not be right for everyone and tax rules may change in the future. If you are unsure if a pension is right for you, please seek financial advice.

A general investment account may not be right for everyone and tax rules may change in the future. If you are unsure if it is the right choice for you, please seek financial advice.