The end of the tax year is getting ever closer, there’s not long to go but long enough to make sure that you have done all of your tax planning in time.
As usual, we want to outline the top planning opportunities available to you IN BRIEF:
- Pensions – personal contributions to a pension offer tax relief at your highest rate (maximum of 45%), subject to an annual contribution limit. In addition, you can look back 3 tax years to mop up any unused relief. The 16/17 tax year will fall away after the 6th April so it’s a use it or lose it opportunity. The same could be said for tax relief in general after the Spring Budget if the Press is to be believed….more on this as we hear.
- Individual Savings Allowances (ISAs) – maximum contribution of £20,000 each
- Junior ISAs/Child Trust Funds – maximum contribution of £4,368 per child
- Venture Capital Trusts (VCTs) – maximum of £200,000 investment with 30% tax relief
- Gifting for Inheritance Tax Purposes – up to £3,000 a year
- Using Capital Gain’s Tax allowances (CGT) – £12,000 per person
If you want to do some planning before the end of the tax year, then please contact us ASAP.
Here’s some more detail for you…
You can contribute up to £40,000 per year and still receive tax relief at your highest rate, however, the amount you can contribute is restricted for anyone earning over £150,000 and it could be as low as £10,000 per year. You can also take advantage of unused contributions from previous years, dating back 3 tax years to really give your retirement planning a boost.
There are whispers that the tax relief system is going to change – a flat rate maybe or even limited to basic rate relief only. Either way, it could change with immediate effect and you should take advantage now if you can.
Did you know?
If you have a spouse who does not work, you can invest up to £3,600 per annum into a pension for them. You can also do this for children and it will only cost you £2,880.
INDIVIDUAL SAVINGS ACCOUNTS (ISAs)
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.
Did you know?
You can now remove funds from an ISA and put them back again, provided the ISA is classed as ‘flexible’ and the transaction is done in the same tax year.
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 the same way as your own ISA, however, the maximum investment is £4,368 per child.
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.
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 of course gift more than this at any time in the year, and if you survive 7 years from the date of the gift, that too will be outside of your estate.
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 £12,000. 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. CGT rates are 10% for a basic rate taxpayer and 20% for the higher rate. It’s 18% and 28% respectively on residential property.
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 taxpayer, 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.
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.