It’s coming up to that time of year to make sure that you are aware and are using all of the tax efficient allowances available to you. There will also be some huge changes in pension legislation with effect from the 6th April and I am going to cover these in a separate note for you.
The end of the tax year this year falls on a Sunday (5th April) and with Good Friday on the 3rd, Thursday the 2nd is going to be the last day that you can take advantage of these opportunities.
Let’s start with the basics……
Individual Savings Accounts (ISA’s)
If you have not yet used up your ISA allowances the overall personal limit for an ISA for the current tax year is £15,000 and this will increase to £15,240 from the 6th April. There is no income tax or capital gains tax payable on ISA proceeds, making them the most tax efficient savings vehicle in the medium to long term. You cannot carry over your ISA allowance and once the year has ended, it is lost.
For these reasons, if you can fill up your ISA allowance then you should. Building up a substantial ISA pot means it can be used in the future to provide you with a tax free income.
In addition, the rules about the treatment of ISA’s on death have also changed and any ISA investments held on death, can be maintained and transferred to the surviving spouse.
If you don’t have readily available cash then we can look to move funds from your other investments into the ISA environment.
For those of you with children (and grandchildren) who do not have an existing Child Trust Fund (you aren’t allowed a Junior ISA if you have a Child Trust Fund) a Junior ISA is a tax efficient way to build up funds for the future. They work in exactly the same way as your own ISA, however, the maximum investment is £4,000. This will increase to £4,080 on 6th April.
If your child already has a Child Trust Fund, then you should look to fully fund this. The allowance is exactly the same as the Junior ISA.
We also understand that from April, you will be able to transfer existing Child Trust Funds into Junior ISA’s. This should give you a wider investment choice for your children’s investments. As soon as we have confirmation on this, we will be back in touch with your options.
The main points regarding pensions remain the same. You will receive tax relief on contributions at your highest rate of tax and the fund grows virtually tax free. At retirement you can take 25% of the fund as a tax free lump sum.
You can contribute up to £40,000 per year and you can also take advantage of unused contributions from previous years, dating back 3 tax years to really give your retirement planning a boost.
In addition, if you have a spouse who does not work, or children under 18, you can invest up to £3,600 per annum into a pension for each of them and this will cost you £2,880.
If you would like to make a contribution to your pension before the end of the tax year, please let me know as soon as possible so that we can confirm the details to you.
Gifting For Inheritance Tax Purposes
You can give away gifts worth up to £3,000 in each tax year and these gifts will be exempt from Inheritance Tax when you die.
You can carry forward any unused part of the £3,000 exemption to the following year, but if you don’t use it in that year, the carried-over exemption expires.
Certain gifts don’t use up this annual exemption however, there is still no Inheritance Tax due on them. For example, wedding gifts of up to £5,000 for a child, £2,500 for a grandchild (or great grandchild) and £1,000 to anyone else. Individual gifts worth up to £250 are also free of Inheritance Tax.
These are relatively small amounts (and you may find you are doing this anyway!), but you should use these up where possible to reduce your overall estate over time.
Capital Gains Tax
Every individual is entitled to a Capital Gains Tax (CGT) annual exemption and this is currently £11,000. It is not possible to carry forward this relief and so you may look to crystallise gains up to this amount before the end of the tax year.
Spouses have two annual exemptions between them and can take advantage of the rules allowing assets to be gifted with no CGT implication until the asset is subsequently disposed of.
For example, if you pay the higher rates of tax and hold shares which are providing a taxable income and your spouse is either a non- or a basic rate tax payer, you could look to transfer the shares into their name. There would be no immediate CGT implications and your taxable income is reduced.
Capital losses can also be used to offset gains and if appropriate for you, this is something we can look at before the end of the tax year.
Venture Capital Trusts (VCT) & Enterprise Investment Schemes (EIS)
As well as the simpler tax planning ideas there are other higher risk and more complex areas, such as Venture Capital Trusts and Enterprise Investment Schemes, which are tax year end sensitive. These are traditionally higher risk investments but can offer up to 30% tax relief and provide diversification of your portfolio. In addition, the underlying investments offer interesting investment opportunities which you may not otherwise be able to access.
The table below shows the main tax advantages.
Let me know if you would like some more information on these.
The earlier end of tax year planning starts this year the better so please do get in touch if you have any questions or if you would like to take advantage of any of these opportunities.
We look forward to hearing from you.