HMRC deadline: How to make the most of ISA and pension allowances | Personal Finance | Finance
While prices from assets including stock market investments and residential property have continued to rise, personal allowances have failed to keep up. Now experts are urging Britons to make use of ISA and pension allowances from HMRC before the tax year end in April.
Capital gains tax (CGT) is a levy paid on the profit made after selling or ‘gifting’ an asset such as an investment, a second home or cryptocurrency.
The rate someone pays depends on whether they are a basic-rate or higher-rate taxpayer.
Usually basic-rate taxpayers pay 10 percent and higher-rate taxpayers pay 20 percent.
However, this increases to 18 percent and 28 percent for second homes and buy-to-let properties.
READ MORE: National Insurance scam – Britons warned ‘assume it’s dodgy’
Mr Hollands explained: ‘With the tax-year end looming, ISAs and pensions are two allowances that are typically front of mind.
“However, it’s also time for investors who own funds and shares outside of ISAs and pensions to take more notice of ‘the forgotten allowance’.
“This is their annual CGT exemption – as regular use of this can help reduce a significant tax liability building up over time.”
Britons can also reduce their tax bill by giving assets to a partner or spouse, offsetting losses against gains and donating to charity.
Mr Hollands added: “Most savers will hold their stock market-based investments in either a pension or an ISA and these assets are automatically protected from CGT.
“Everybody also gets a yearly CGT allowance, otherwise known as the annual exemption.
“So, in the tax year 2021/22 most people can crystallise up to £12,300 in gains on assets before paying CGT – but that is one of several tax allowances to be frozen until 2026.”
In addition, he recommended four extra ways people can reduce their CGT liability before the deadline.
Fours ways to reduce capital gains tax:
- Make the most of interspousal transfers
- Offset losses
- Prevent a “pregnant gain” by using allowances every year
- Make the most of ISA and pension allowances.
