End of year tax planning
The nights are getting lighter and spring is around the corner, which means that the tax year is coming to an end. There is some basic planning that you should consider before April 5th to make sure you do not lose out on tax savings that will be lost once the new tax year starts.
If you have not done so already, I have listed below some basic planning for you to think about. Please feel free to get in touch if you want to action anything or have any questions.
INDIVIDUAL SAVINGS ACCOUNTS
The overall personal limit for an Individual Savings Account (ISA) for the current tax year is £11,280 and this will increase to £11,520 for the new tax year commencing on April 6th.
You should remember that there is no income tax or capital gains tax to pay 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 tax year has ended, it is lost.
We would advise you to fill up your ISA allowance each year if you can. The ISA will become a fantastic planning vehicle in the future for you, with the ability to take tax free income and always have access to your capital if you need it. Don’t forget you can also make ISA contributions for your children whether over or under 18, assuming they do not already have a child trust fund.
PENSIONS
There are a few changes to the legislation around pensions, which seems to be the case in most years. The main points remain the same, that you will receive tax relief on contributions at your highest rate of tax and the fund grows virtually tax free.
For those of you that pay tax at 50%, you can have half of your pension contribution funded by the Government from the tax relief you receive. From April 2013 this will change and you will only be able to claim back 45% tax as the top rate of tax reduces from 50% to 45%.
Another change is the amount you can pay into your pension. This is reducing next tax year from £50,000 to £40,000. If you want to look at funding your pension, or topping it up, we suggest you do so before the end of this tax year. You can also carry forward pension contributions from previous years, dating back 3 tax years. This could mean a substantial boost to your retirement plans, and possibly help you retire earlier than you had originally thought.
Pensions are a complex area so I would encourage you to speak to us first before going ahead.
INHERITANCE TAX
The tax free limit for Inheritance Tax is £325,000, so for a married couple that is £650,000 of tax free estate which can be passed on to the next generation. If you have not done so, remember you can make gifts during a tax year and these will be exempt from IHT if they fall within the limits. These are £3,000 per person and therefore £6,000 for a married couple. Larger gifts over and above this amount will be deemed as a Potentially Exempt Transfer and the 7 year clock will start ticking.
There are plenty of other effective solutions to Inheritance Tax and we have a guide available outlining these options. We will be happy to send this to you or discuss your individual requirements.
OTHER
As well as the main end of tax year planning, there are other higher risk and more complex areas, such as Venture Capital Trusts and Enterprise Investment Schemes which we would be happy to discuss in more detail with you.
If you have any questions please feel free to get in touch.
