Common mistakes to avoid before the end of the tax year

end of the tax year

The current tax year ends on 5 April 2018 which means you still have time to make use of your tax-efficient allowances.

Our guide highlights five common mistakes you should avoid before the end of the tax year 2017/18. Keep reading to find out what you need to do by 5 April.

Not using your ISA allowance

If you’re a UK resident aged 18 or over then you have an annual Individual Savings Account (ISA) allowance. This enables you to save into a tax-efficient ISA investment each tax year.

There’s no way of carrying over your ISA allowance from one tax year to the next, and so you will lose it if you don’t use it.

The ISA contribution limit in the 2017/18 tax year is £20,000. You can invest this all in a Cash ISA or a Stocks and Shares ISA, or you can split your savings between cash and stocks and shares.

If you haven’t yet maximised your ISA investment, you have until 5 April to do so.

As well as your own ISA, parents can also put up to £4,128 into a Junior ISA for each of their children under the age of 18. Again, you can’t roll over this allowance and so if you want to maximise your tax-free savings for your children, you must invest before 5 April.

Failing to make your annual gifts

Inheritance Tax (IHT) becomes payable if a person’s estate is worth more than £325,000 when they die. Currently IHT is charged at 40% on anything above this threshold.

Under the IHT rules, you are allowed to gift up to £3,000 a year while you’re still alive without attracting any tax. You can also use the previous year’s allowance meaning you could potentially gift up to £6,000 by 5 April.

If you’re part of a married couple or civil partnership and you have made no previous gifts, you could jointly give away £12,000 this tax year completely free of IHT.

Not using your Capital Gains Tax allowance

Capital Gains Tax (CGT) is payable based on the profits made when you sell or ‘dispose of’ an asset that has increased in value. It is charged at 18% for basic rate taxpayers or 28% for higher rate taxpayers.

Every individual has an annual Capital Gains Tax allowance. This means that before the end of the 2017/18 tax year you can dispose of assets such as property, shares or valuables without paying tax on the first £11,300 of profit.

You cannot carry one year’s exemption to the next, meaning you have to use your allowance before the end of the tax year.

Not maximising your pension contributions

Each tax year you can contribute £40,000 (gross) into a pension scheme. This can be increased if you did not use up your allowances in the preceding three years.

What this means is that you can not only maximise your pension contributions before 5 April 2018, but you can also bring forward unused allowances from 2014/15, 2015/16 and 2016/17.

Pension contributions get income tax relief at your marginal rate and so it’s worth maximising your contributions if you can.

Not claiming your tax refund

5 April 2018 is the final deadline for claiming any tax refunds from the 2013/14 tax year.

You can claim:
• Your PAYE tax refund for the 2013/14 tax year.
• Any overpaid tax under self-assessment for the 2013/14 tax year.
If you fail to claim any tax that you are owed from the 2013/14 tax year by 5 April 2018, you won’t be able to get a refund after this date.

 

Please note: All information within Your Resource Centre is correct at the time of publication, and we make every effort to keep content accurate. However sometimes information may be out of date. You should not rely on this information when making financial decisions as no financial advice has been given. The information reflects the view of the author and not that of Shepherds Friendly Society.

If you’re not sure what to do when making financial decisions then you should consult a financial adviser, who will likely charge for any advice that is given.

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