Annual tax allowance check list
Each new tax year we get a set of annual allowances. Many can't be rolled over, hence the widely used term at this time of year: 'use it or lose it'. As we enter the last week of the current tax year, we outline six allowances, so you can check you are making the most of them.
1. ISA allowances
The ISA allowance is £15,240 this year – going up to £20,000 in 2017/18. The Junior ISA allowance (and Child Trust Fund allowance) is £4,080 this year, rising to £4,128 in 2017/2018. If you don’t use any of these ISA allowances before 6 April you’ll lose them.
2. Pension contribution allowances
Each year you can pay in up to 100% of your earnings to a maximum of £32,000 net (£40,000 gross), subject to tapering (it decreases by £1 for every £2 you earn over £150,000, down to a minimum of £10,000). You can currently carry forward any unused annual allowance from the previous three years.
3. Venture capital trusts
The maximum investment to qualify for income tax relief via a venture capital trust (VCT) is £200,000 per annum and you can claim 30% income tax relief (provided you have paid the equivalent in income tax already) on the amount you invest when you complete your tax return the following year. Investors should be aware that the sale of new shares in a VCT within five years of their subscription will require repayment of the 30% income tax relief to the extent of the amount received from such a sale. VCTs also invest in high risk and illiquid stocks. Hence, an investment in a VCT is not a short or medium-term investment.
4. Personal savings allowance
Most people have a personal savings allowance (PSA), which enables savers to earn up to £1,000 interest each year, tax-free. The allowance is £1,000 for basic-rate taxpayers or £500 for higher-rate taxpayers. There is no allowance for additional rate taxpayers. Interest earned from bank and building society accounts, corporate bonds and government bonds, as well as peer-to-peer lending, is included.
The PSA is for each individual. Joint account holders will have the interest split equally between them. This means that two basic rate taxpayers could have a joint account paying up to £2,000 interest and not have any further tax liability. If the account holders are in different tax bands, it gets slightly more complicated. For example, interest earned of £1,500 would incur a tax liability for a higher rate joint account holder as it would be split £750 each. The higher rate payer only has a PSA of £500 whereas the £1,000 PSA of the basic rate holder would leave £250 unused – or available for use in another account.
5. Dividend allowance
At the moment you can also receive up to £5,000 of dividend income from shares held outside of a pension or ISA without paying any tax. However, in the 2017 budget earlier this month, Philip Hammond announced that the allowance would fall to £2,000 in April 2018.
6. Capital gains tax
If you own investments outside of a tax wrapper, you could also be liable for capital gains tax (CGT) if you sell or transfer them. There is an annual CGT allowance of £11,100, however. This means you can make up to £11,100 of gains in a tax year without paying tax on your profits. Like the ISA and VCT allowance, you can't carry this forward.