The 5th April marks the end of the Tax Year in the UK. With this date fast approaching, now is a good time to be considering your financial arrangements, particularly to make sure you don’t miss-out on any tax allowances. Please don’t leave it to the last week!
Individual Savings Accounts (ISAs)
For the current tax year, savers can place up to £20,000 in an ISA. If you don’t use your ISA allowance by the 5th April, you’ll lose it for this year. All UK residents aged 16 or over can save into a Cash ISA, although you have to be 18 or over to have a ‘Stocks and Shares’ ISA.
Children under the age of 18 can have a Junior ISA, where the tax-free allowance this year is £4,368. If you’re lucky enough to be 16 or 17, you can use both the Cash ISA and the Junior ISA allowance!
If your ISA is ‘Flexible’, you can withdraw cash and then put it back during the same tax year, without reducing your current year’s allowance. Not every provider offers Flexible ISAs (and this option does not apply to Junior ISAs) – so please check with us if you’re not certain.
For pensions, your annual allowance is the limit on the total amount you can pay into pension scheme(s) each year and still receive tax relief. For UK taxpayers in 2019-20, the allowance is capped at £40,000 (gross) or 100% of your salary (whichever is lower). There can also be options to ‘carry forward’ unused allowances from previous years. Please check with us if you’re not sure about your pension allowance, or want to more generally review your pension plans.
Capital Gains Tax
Most people have a Capital Gains Tax (CGT) allowance, which for 2019-20 is £12,000. You’ll only pay CGT if your overall ‘realised’ gains for the tax year are above this allowance, after deducting any losses and applying any reliefs. This can be a complicated area so please check with us if you’re not certain about your CGT allowance.
If you have any questions about your annual allowances, the end of the Tax Year, or your financial plans in general, please do get in touch.
PS….Why the 5th April?
Like us, you might be curious why the UK Tax Year ends on the 5th April. It’s a strange story – involving disagreements with our European neighbours and Government concerns about lost revenues (sound familiar!?). In medieval England and Ireland, financial accounts had to be settled on one of 4 ‘quarter days’ each year. The most important was ‘Lady Day’ – March 25th – the date of the Annunciation. In 1582, most of Europe switched from the Julian Calendar to the Gregorian one, but England decided against. By 1752, the differences between the calendars meant that England had moved 11 days out of alignment with the rest of Europe! Accepting the need to change, September was shortened that year – moving straight from the 2nd to the 14th. However, the Treasury didn’t want to lose any tax revenue so, in 1753, the end of financial year was moved 11 days from Lady Day to April 4th (and then again to April 5th in 1800). It’s stayed the same ever since!
With thanks to Professor Jane Frecknall-Hughes’ article in the Independent, 6th April 2016.