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A financial adviser’s guide to tax allowances

HL Financial Adviser, Bradley Clark, shares his top tips on taking advantage of your tax allowances before the tax year end on 5 April.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

It can be difficult to know where to start when it comes to planning how to use your tax allowances before the end of the tax year on 5 April.

Here are a financial adviser’s top tips on making the most of your tax allowances before it’s too late.

This article isn’t personal advice. If you’re not sure if something’s right for your circumstances, ask for advice. Tax rules can change, and benefits depend on personal circumstances.

ISA allowance

A good place to start is to think about sheltering your money from UK income and capital gains tax. You can do this with an ISA.

Every adult who’s a UK resident can pay in up to £20,000 each tax year into ISAs.

There aren’t any rules about how to split your allowance between different types of ISAs, as long as the total doesn’t exceed £20,000.

A Stocks and Shares ISA lets you invest your money into the stock market. Investing over the long term can help grow your money more than using a Cash ISA, but it’s also riskier than holding just cash.

If you’re planning on investing in a Stocks and Shares ISA, it should be for the long term – that’s a minimum of five years. Unlike the security offered by cash, investments can go up and down in value, and you might not get back what you invest.

Lifetime ISA

If you’re saving for your first home or retirement, the Lifetime ISA (LISA) could be for you. Anyone between 18-39 can open one and you can pay into it until you reach 50. After that, you won’t be able to add any more money.

Every time you put money into a Lifetime ISA, the government will give you a 25% bonus.

The current Lifetime ISA allowance is £4,000 per tax year. If you contribute the full amount, the 25% government bonus will mean you get £1,000 added on top.

You can normally withdraw your money free of charge from 12 months after your first contribution if you’re using the money to make an eligible home purchase (worth up to £450,000). Or you can wait until you're 60 and take your money out then.

If you want to take money out before you're 60 and you aren't buying your first home, then this is usually an unlisted withdrawal with a government charge.

In May 2020, the Treasury temporarily cut the LISA withdrawal charge from 25% to 20%. The temporary cut applies to unlisted withdrawals until 5 April 2021 and started from 6 March 2020. From 6 April 2021, this charge will go back up to 25%.

Sign our petition – keep the reduced LISA withdrawal charge

If you do add money into a Lifetime ISA, the amount you contribute will use up part of your overall £20,000 ISA allowance for that tax year. For example, if you put £4,000 into a Lifetime ISA, you’ll have £16,000 of ISA allowance remaining for that tax year. Thankfully, the government bonus of 25% doesn’t count towards your allowance.

Learn more about LISAs

Junior ISA – maximise tax shelters for the whole family

Help give your child a better start to life by setting them up with a Junior ISA. Children up to the age of 18 have a Junior ISA allowance of £9,000 in the 2020/21 tax year.

Once money has been added to a Junior ISA, it can’t be taken out until the child reaches 18. At this point, the money in the Junior ISA goes into the 18-year old’s name and it becomes an ‘adult’ ISA. They’re then free to use this money however they like.

Adults can hold multiple ISAs as long as the subscriptions made each year follow ISA rules. But you can only hold one Junior Cash ISA and one Junior Stocks and Shares ISA per child.

If you already have a Junior ISA and want to open another with a different provider, you can transfer it across.

Find out more about Junior ISAs

Is your child between the age of 16 and 18? If so, they could contribute up to £29,000 in the current tax year (the ISA loophole).

Children up to the age of 18 can have up to £9,000 contributed on their behalf into Junior ISAs.

But did you also know that from 16 a child can open an ‘adult’ Cash ISA and add up to £20,000 each year? This is in addition to their Junior ISA allowance, so in total they could have £29,000 contributed into tax-efficient accounts in a single tax year.

This only applies to adult Cash ISAs, where the minimum age is 16. To open and contribute to an adult Stocks and Shares ISA you must be 18.

Gifting allowances

Another efficient way of reducing your tax bill is to think about Inheritance Tax (IHT). Although nobody likes to think about IHT, it can pay to think about how you can lessen the tax on your estate upon death.

One way to potentially reduce your estate is to make gifts.

Each UK resident can gift up to £3,000 each tax year, while reducing the size of their estate for Inheritance Tax (IHT) purposes at the same time. It’s possible to carry forward the unused allowance from the previous tax year. For example, if you made no gifts in 2019/20, you can gift up to £6,000 in 2020/21.

There are different gift exemptions available including for wedding gifts, gifts out of income and small gifts.

Find out more about gifting allowances

Any gifts made that don’t fall within one of the allowances aren’t necessarily subject to any immediate tax, but could become a Potentially Exempt Transfer (PET). These are gifts that are tax free if you survive 7 years after making the gift.

Gifting allowances and IHT are a complex area of financial planning. While we offer financial advice on planning your estate, we don’t give advice on tax. We would recommend speaking to a tax specialist like an accountant, who can help you decide what’s right for you.


Pensions can be an excellent vehicle for saving for retirement. If you’re under the age of 75 and live in the UK, when you add money into a pension you’re normally entitled to tax relief. This could be as much as 45% (although rates differ for Scottish residents) for those who pay tax at the highest rate, but limits apply.

While your money is held inside a pension, any growth or income your money generates is free of UK tax – just like money in an ISA.

Unlike ISAs however, you can normally only access money in a pension once you’ve reached 55 (rising to 57 in 2028). So a pension might not be suitable if you think you’ll need the money before then. Remember, income eventually taken from a pension is taxable.

Generally, the maximum amount that can be contributed in total from all sources (for example you and your employer) each tax year is £40,000. This is known as the annual allowance.

If you haven’t used your full allowance from any of the previous three tax years, you might be able to carry it forward and use it in the current tax year. This could mean you can contribute up to £160,000 in some cases.

Find out more about the annual allowance

To receive tax relief, your personal pension contributions are limited to £3,600 a year, or 100% of your earnings, whichever is greater. Remember, tax rules change and any benefits depend on individual circumstances.

Are you ready for the end of the tax year?

With the 2020/21 tax year ending on 5 April, the time to get your finances in order and make the most of government tax breaks and reliefs is running out.


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Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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