Making the End of Tax Year 2020/2021 less taxing! (part one – allowances)

The 2020/2021 tax year officially ends on Monday 5th April 2021. So we are Making the End of Tax Year 2020/2021 less taxing! (part one – allowances).  In this first part of three, we have listed several ways you can make the most of your money, by using your tax relief and allowances!

Tax relief for your job expenses

If you have had to work from home on a regular basis (such as during the pandemic), you may be able to claim tax relief on household costs such as heating, water bills, home contents insurance, business calls or a new broadband connection.

You can either claim tax relief on:

• £6 a week from 6 April 2020 (for previous tax years the rate is £4 a week) – you will not need to keep evidence of your extra costs
• the exact amount of extra costs you’ve incurred above the weekly amount – you’ll need evidence such as receipts, bills or contracts

You may also be able to claim tax relief on new equipment you have bought, such as a laptop, chair or mobile phone.

View the HMRC website for more information.

Tax relief on your Workplace pension

When you pay into your pension, some of the money that would have gone to the government as tax goes towards your pension instead.

Most Workplace pension schemes operate under the Net Pay arrangement, meaning everybody gets 20% tax relief. If you are a higher-rate taxpayer, you have to make a self-assessment claim for the additional 20% relief on your pension contributions.

View the Money Advice Service website for more information.

Make a Charitable Donation

Charitable donations are generally tax free. Those made through Gift Aid entitle the charity to an extra 25p for every £1 you give. This doesn’t cost you extra, Gift Aid assumes that the money has been already been taxed at the standard rate.

Reduce your Inheritance Tax bill

Inheritance Tax (IHT) is paid by the people who inherit your estate after your death. The rate is 40% for estates worth more than £325,000.

One way of avoiding your family paying IHT on your estate is to give it away when you are still alive. However, the giver must survive for 7 years after the gift, depending on circumstances.

You can also give away £3,000 worth of gifts each tax year without them being added to the value of your estate. This is known as your ‘annual exemption’.

In addition, you can give as many gifts of up to £250 per person as you want during the tax year as long as you have not used another exemption on the same person.

Child Benefit

Child Benefit is clawed back by a tax charge if the highest earning individual in the household has income of more than £50,000. It is cancelled altogether once their income exceeds £60,000. A pension contribution will reduce income and reverse the tax charge, wiping it out altogether once income falls below £50,000.

Marriage Allowance

Eligible married couples and those in civil partnerships can transfer up to £1,250 of personal allowance (10% of the £12,500 personal allowance for 2020/2021) to their partner under the Marriage Allowance. This applies if one of you earns less than the personal allowance, so is not liable to tax, and the other partner is a basic tax payer.

You can also backdate your claim to include any tax year since 5 April 2016 that you were eligible for Marriage Allowance.

You can apply for Marriage Allowance on the HMRC website.

Effective tax year end planning is a year round job, but it’s only at the end of the tax year that you have the view to put your plans in place. Do act soon to meet the 5 April deadline.

Tax rules may change in the future, and the value of tax reliefs depends on your own personal circumstances. This article is not personal advice.

> Read part two of ‘Making End of Tax Year 2020/2021 less taxing – Investments’

> Read part three of ‘Making End of Tax Year 2020/2021 less taxing – Pensions’

We can help – Making the End of Tax Year 2020/2021 less taxing! (part one – allowances)

If you would like a consultation with one of our Independent Financial Advisers, please contact us by email: info@innesreid.co.uk or on our normal telephone number: 01244 347583 during office hours.

First consultations are free and appointments can be made outside of working hours, face to face or over video conferencing.