Use it or Lose it: Tax Allowances

Use them or risk losing them. Make sure you make the most of the allowances available to you as we approach the end of the tax year.

Our tax year here in the United Kingdom runs from April to April. The current tax year started on 6th April 2020 and runs up until April 5th 2021. The next tax year will then run from 6th April 2021 until 5th April 2022 and so on and so forth.

That being said, the current tax year 2020/2021 will go down as one of the most tumultuous in living memory. Our lives have all been impacted by not just the ongoing global pandemic but the various uncertainties in the world we live in. The trickle down effect of this upheaval on our personal finances will likely have been at the forefront of our thoughts in some way for better or for worse. At this point of the calendar year, it is worth reviewing your finances to ensure that you don’t miss out on making full use of the various allowances available to you so that we can leave this tax year on a positive note.

Below we provide you the reader with a brief overview of the some of the key allowances available. If after reading this article you have any further queries, please do not hesitate to get in touch and one of our team of dedicated advisers will be glad to help.


ISAs are fantastic. They can be used as a savings or investment account that essentially, you never pay tax on whilst alive. Any growth that occurs within the ISA wrapper is free from any form of tax.

In the current tax year, you can save and or invest a maximum of £20,000 into a single ISA or across a number of ISAs including a Cash ISA, a Stocks & Shares ISA or an Innovative Finance ISA. Your ISAs will not close when the tax year finishes. You’ll keep your savings on a tax-free basis for as long as you keep the money in your ISA accounts.

Prospective first-time house buyers or those looking to set up an alternative pension fund can put up to £4,000 of their annual £20,000 ISA allowance into a Lifetime ISA. This type of ISA automatically adds 25% to the value of any deposits made in that tax year. The remaining £16,000 can be placed in an alternative ISA.

Parents looking to save on behalf of their children can open a Junior ISA in their child’s name providing they are under the age of 18.  Notably, anyone can make contributions into this ISA up to a total £9,000. The child is not able to access until 18 at which point the ISA will often revert to normal ISA rules.

Children aged between 16 and 18 are able to open both a Cash ISA and a Junior ISA meaning that they can in theory contribute a total of £29,000 into ISAs.

The biggest caveat with ISAs is that any unused allowance cannot be carried over to subsequent tax years. This really is a use it or lose it allowance.


Pensions are another type of ‘wrapper’ that form an integral part of the financial planning process. Let’s take a look at making contributions into your pension first.

Contributions into a pension are currently capped at £40,000 in the 2020-21 tax year, or 100% of your income if you earn less than £40,000. This is referred to as your “annual allowance” and is made up of all contributions to your pension made by you, your employer and any third party (including pension tax relief). Please note that this figure may be lower depending on the level of income and applies to all pension savings that you make or that are made on your behalf.

Unlike ISAs, a process called ‘carry forward’ allows you to make pension contributions to fill up any unused allowance you might have from the previous three tax years. However, you must meet the following two conditions. Firstly, you must earn at least the amount you wish to contribute in total this tax year (unless your employer is making the contribution). Secondly, you must have been a member of a UK-registered pension scheme (this does not include the state pension) in each of the tax years from which you wish to carry forward.

If you have taken money out of your pension, you can still make contributions and earn tax relief. However, you get a lower annual allowance. In 2020-21, this is £4,000. The money-purchase annual allowance allows you to receive tax relief on contributions of up to 100% of your earnings or £4,000, whichever is the lower.

When it comes to withdrawing an income from your pension it is important to take into account your personal allowances. In 2020-2021 you can receive £12,500 in income without paying any tax. Once you exceed this threshold, you’ll start to be taxed at a marginal rate.

Capital Gains Tax (CGT)

Proposed changes to CGT allowances and rates of tax have made headline news as of late with the government seeking to recuperate the costs of Covid. It may be a case of ‘better the devil you know’ when it comes to reviewing any potential CGT liability. Saying this, the CGT allowance for this year is up £300 on the previous year. Only Mr Sunak knows what the future holds when it comes to CGT.

Capital Gains Tax is a tax on the profit when you sell (or ‘dispose of’) something (an ‘asset’) that’s increased in value. It’s the gain you make that’s taxed, not the amount of money you receive. You need to pay Capital Gains Tax when you sell an asset if your total taxable gains are above your annual Capital Gains Tax allowance.

The capital gains tax allowance in 2020-21 is £12,300 for individuals or £24,600 for those who are married or in a civil partnership. For trusts the allowance is £6,150 per year.

The rate of CGT depends on the amount of an individual’s total taxable income and gains from all sources. For further information about working out a potential CGT liability speak to one of dedicated team of advisers.

If you don’t make full use of your CGT allowance in a given tax year, you aren’t allowed to carry it forward to the next.

This article is for information purposes only – should not be perceived as financial advice. We recommend you should always speak to a financial adviser before making any investment decisions. We are not tax advisers. If you are unsure about any aspect of your personal tax position, we recommend that you discuss this with your usual tax adviser