Tax Allowances

The UK gives you tax-efficient ways to save and invest, but each comes with limits. If you're not tracking them, your projections assume you can contribute forever, and the numbers start to drift from reality. Doughsense tracks these limits so your projections cap contributions and adjust tax treatment automatically.

What Doughsense Tracks

You can set up allowances for any tax-advantaged limit. The most common ones:

• ISA annual contribution limit - Currently £20,000 per tax year across all your ISAs
• Pension annual allowance - How much you can contribute to pensions each tax year and still get tax relief
• Pension lump sum (25% tax-free) - The portion of your pension you can withdraw without paying tax
• Capital gains annual exempt amount - The amount you can gain from selling assets before capital gains tax applies
• Dividend allowance - Tax-free dividend income each year

Why It Matters for Projections

Without allowance tracking, projections don't know when to stop. If you're contributing £1,800 a month to an ISA, projections assume that continues indefinitely, even after you've hit the £20,000 annual limit.

With allowance tracking:

• Contributions cap at the limit - When you hit your ISA allowance, Doughsense redirects the excess to your sweep account instead of pretending you can keep contributing
• Tax treatment adjusts - For pension withdrawals, Doughsense tracks how much of the tax-free allowance you've used and shows when withdrawals become fully taxable
• Allowances reset correctly - Annual limits reset each tax year (6 April), while lifetime limits track cumulative usage

The result: projections that reflect what actually happens when you hit a limit, not a fantasy where limits don't exist.

Setting Up Tax Allowances

Step 1: Navigate to Tax Allowances

1. Click the user menu in the sidebar
2. Go to Settings
3. Select Tax Allowances

Step 2: Add an Allowance

1. Click Add Tax Allowance
2. Choose the type of allowance
3. Enter the limit amount

Step 3: Configure the Reset Period

Each allowance either resets or doesn't:

• Resets each tax year (6 April) - For annual limits like ISA contributions and pension annual allowance. The counter goes back to zero at the start of each tax year.
• Lifetime limit - For one-off allowances like the pension tax-free lump sum. Once you've used it, it's gone.

Step 4: Link to Accounts or Income

Connect the allowance to the relevant parts of your finances:

• For contribution limits (like ISAs): Link to the accounts you contribute to. Doughsense will cap contributions at the limit and redirect excess to your sweep account.
• For withdrawal limits (like pension lump sums): Link to your income streams. Doughsense will track usage against the limit and adjust tax treatment when the allowance runs out.

Worked Example: ISA Contributions

You contribute £1,800 per month to a Stocks and Shares ISA, with a £20,000 annual ISA allowance.

Here's what happens during the tax year:

April - February (11 months):
  £1,800/month x 11 = £19,800 contributed
  Remaining allowance: £200

March:
  £1,800 payment due
  Only £200 of allowance left
  £200 goes to ISA
  £1,600 redirected to sweep account

April (new tax year):
  Allowance resets to £20,000
  Full £1,800 goes to ISA again

Without tracking, projections would show £21,600 going into the ISA every year. With tracking, they show £20,000 to the ISA and the rest accumulating in your sweep account, which is what actually happens.

Worked Example: Pension Lump Sum

You're drawing down a £400,000 pension pot. The first 25% (£100,000) can be taken tax-free. After that, withdrawals are fully taxable.

You withdraw £2,000 per month:

Months 1-50:
  £2,000/month withdrawn
  25% tax-free = £500/month tax-free
  Cumulative tax-free used: £500 x 50 = £25,000... continuing

After £100,000 tax-free used:
  Withdrawals become fully taxable
  Projections reflect the higher tax burden

Doughsense tracks how much of the £100,000 tax-free allowance you've used. Once it's exhausted, projections show all future withdrawals as fully taxable, so your net income projections stay accurate.

Common Setups

UK Saver

If you're building wealth through ISAs and a workplace pension:

• ISA contribution limit: £20,000/year, resets each tax year
• Pension annual allowance: Set to your allowance, resets each tax year
• Link the ISA allowance to your ISA accounts, and the pension allowance to your pension contributions

Approaching Retirement

If you're planning to start drawing your pension:

• Pension lump sum allowance: 25% of your pension pot, lifetime limit
• Link to your pension withdrawal income stream
• Projections will show when your tax-free withdrawals run out and the tax impact on your income

What's Next?

• Personalise your settings to fine-tune growth rates and inflation
• See your financial future with projections that respect your allowance limits
• Managing your finances to set up the accounts and income streams that connect to your allowances