Holly's Blog: Use your allowances or I'll bite you!

Team photo day yesterday at Boring HQ. The resident hound was very unhappy to hear that people had not taken advantage of their annual allowances! With just over 3 weeks left this tax year, there will be something that many of us can do to improve our situation, so here are 10 Holly Tips.

Capital Gains Tax (zzz, I know BUT)

Everyone has £12,300 of profit they can make from selling stuff every year without paying any tax on it. If you make more than £12,300 of profit in any one year, basic rate taxpayers will pay 10% tax on the gains. Higher rate taxpayers pay 20%. Hmm. Sold a second home or buy-to-let flat? Basic rate taxpayers will pay 18% and higher rate taxpayers 28%. Ouch.

Tax Busting Tips

• Use an ISA to save yourself tax in the future! (Choose one)
  I think of an ISA like a safe, which the taxman can’t get his grubby mitts on. You can conceptually make gazillions of profit in your ISA and pay not a penny of tax. These accounts are the no-brainer starting accounts for most of us to use. And no need to procrastinate – you can start most of them with £100 or less and our site will help you to pick a good ‘un.
  Every adult can put up to £20,000 into this ‘tax safe’ every year.

• Got the heebie-jeebies?
  We can see that people are understandably freaked out by the current volatility and uncertainty. But do remember that you can put cash into a stocks and shares ISA and leave it there as cash, ready to invest in the future. So you can put money into the ‘safe’, get it into this tax-free environment, without having to dive into investing immediately. You can always set up a monthly ‘drip-feed’ into the market!'

• The under 40s who are saving for a flat should really consider a Lifetime ISA. If you are lucky enough to have parents who can afford and are willing to help, they could put £4,000 into one before 5th April, and £4,000 into it after 5th April – and get a £1,000 contribution from the government each time. Or if you are young and loaded, ditto. Turning £8,000 into £10,000 in one month - not bad. There are penalties if you change your mind and want to use a LISA for anything other than a first property or retirement though, so do read up on this.

• If you are young, loaded and handsome to boot, do get in touch for a personal session discussing your tax situation! (ha ha ha... JOKE… moving on…)

• Do you have any shares or investments outside an ISA?
  You can stick up to £20,000 into an ISA this tax year. Even if you have no spare cash, could you move any shares or funds outside an ISA into one? This is given the ridiculous name of ‘Bed and ISA’ by the industry. For example, if you have £40,000 in shares which are NOT currently in an ISA, you could sell half at the end of March, move the £20,000 cash into the ISA and then buy the shares back. And repeat after 5th April with the remaining £20,000. So you now have those investments in the ‘tax safe’.
  Don’t get caught out with timing. Remember it usually takes 2 working days to get your hands on the cash from selling shares, and 4 days from funds.

• Be careful of capital gains tax though…
  Two things to think about if you are tempted to do this.
  a) Capital gains tax – selling investments outside an ISA will ‘realise gains’. Make sure these gains won’t take you over your £12,300 annual allowance or there will be tax to pay which you may not want.
  b) You will be out of the market for a bit. There will be a gap of up to a week in between selling and buying back. Markets are volatile at the moment so make sure you’re OK with this.

• Offset any gains
  You can get quite cute if you have things outside an ISA. If you have gains of more than £12,300 (maybe you have sold a property or something big?), could you sell some shares or funds which have gone down in value? Then you ‘realise the loss’ which could bring your gains down under the £12,300 allowance. And then buy the thing back again after a minimum period of 30 days. So you still have it. You’ve just played (legal) jiggery-pokery with some dates and lowered your gains in any one tax year.

• Give your partner a lovely present?
  Interspousal transfers – between married people or those in a civil partnership – can be your friend. As a duo, you have £24,600 of tax-free gains. Who knew that Jennifer Rush was thinking about CGT when she wrote The Power Of Love? You can give each other stuff out of the kindness of your tax-hating heart. "Hello darling, here is a present of 1,000 Unilever shares as a token of my undying love for you. Now could you sell them please and realise the gains in your name, not mine?" This wheeze is also good if one of you is a lower-rate taxpayer. You want the lower-rate taxpayer to make all the gains. Before doing this, it’s good just to sense-check that they don’t hate you and are not planning to run away and ‘find themselves’ in a luxury resort in the Caribbean for 6 months, because they will own the asset!

• Remember Junior ISAs
  If you are a very well-off parent, you can also use point 5 above to fill up on Junior ISAs too. The idyllic family of 4 - last seen in 1980s advertising - could have up to £20,000 in an ISA each for Mum and Dad, and £9,000 each for little Johnny and Jemima. Just don’t tell Johnny and Jemima because they will own the assets when they turn 18 and you don’t want them to drop out, grow dreadlocks and go and live in a treehouse in Ko Phangan!

• And finally, pensions can be your friend…
  The general rule of thumb is that you can contribute up to 100% of your salary OR a maximum of £40,000 a year (whichever is lower). This includes both your contributions and employer contributions. If you have inherited money, been gifted money, sold a business or found a pot of gold, do read up on pension carry forward – this basically means you can use the previous 3 years’ allowance too, stick a shed load into a pension, and get those lovely government top ups. There are all sorts of terms and conditions and limits and rules as you will imagine, so I would consider getting some financial advice at this point so you don’t muck it up.

Well, that is quite enough tax fun for one week. Have a good weekend everyone. I have an in-person parents’ evening tonight. I'm hoping they will be as brutal as the ruthless online versions at keeping all parents to their 4 minute allocations! That should be one lasting benefit of the pandemic…