3 Ways to Stay Tax Smart in 2020

The start of a new year is a fantastic time to get your finances in order, with the deadline for filing your self-assessment tax return coming up fast on January 31st, 2020 and the end of the tax year only three months away

Being proactive in order to stay tax smart and minimise payments is something everyone can do, regardless of net worth, explains James Turner, Director at company formation specialists, Turner Little. What that does mean however, is that planning is of utmost importance in order to ensure you stay on track for your goals, be it retirement, financial freedom or building the right foundations to grow your assets.

Max out your allowances

Using your available tax allowances, is a simple way to begin reducing your tax bill, this includes the £20,000 ISA allowance. For those investing outside of the ISA wrapper, capital gains tax allowance is £12,000 for this year.

Pay into your pensions

Whilst ISAs offer favourable tax treatments once your money is in the account, they don’t help you cut your immediate income tax bill, because your contributions still come out of your taxable income. If you want to reduce the amount of today’s income that you’re losing to tax, consider paying into a pension, making sure you use up your entire annual allowance, which is currently £40,000.

Utilise tax-efficient investments

It’s important to note that the £40,000 annual pension allowance reduces if you earn more than £150,000 per year. This has led to high earners investing in VCTs and enterprise investment schemes instead. Investors in VCTs can get income tax relief of 30% on investments up to £200,000, providing shares are held for five years.

Whilst there are plenty of ways to bring your tax liabilities down, it’s important to appreciate that tax rules and regulations are constantly evolving. With a budget expected as early as February, this could bring in some key changes that may affect your personal finances., so seek independent financial advice if you’re ever unsure as to how these impact your individual circumstances.