The 5th April will soon be upon us and it is time to make sure you have used up all of your allowances for the current tax year.
Here is a list of all the main tax planning opportunities available to you…
- Pensions – current maximum Annual Allowance of £40,000 and this reduces to as low as £10,000 depending on your income
- Individual Savings Allowances (ISAs) – maximum contribution of £15,240 each
- Junior ISAs/ Child Trust Funds – maximum contribution of £4,080 per child
- Help to Buy ISAs – maximum of £200 per month with an extra £1,000 in the first month – these can be transferred into the new Lifetime ISA from April 2017. We will send you a separate note on the Lifetime ISA.
- Venture Capital Trusts (VCTs) – maximum of £200,000 with 30% tax relief
- Enterprise Investment Schemes (EIS) – maximum of £1,000,000 with 30% tax relief
- Gifting for Inheritance Tax Purposes – up to £3,000 a year
- Using Capital Gain’s Tax allowances – £11,100 per personPensions continue to take centre stage, with reduced contributions for high earners, but much more flexibility in how you take benefits in retirement.
- VCTs have again proved very popular and they are a great way of investing in interesting companies and being able to get attractive tax relief.
- From 6th April you will be able to invest £20,000 each into an ISA, an increase of just under £5,000 from this tax year.
At the moment 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. If you think you will be affected by these restrictions (remember this includes employer contributions too) then get in touch and we can go through your options.
Also don’t forget, 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.
INDIVIDUAL SAVINGS ACCOUNTS (ISAs)
If you have not yet used up your ISA allowances, the overall personal limit for an ISA for the current tax year is £15,240. 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. You can now however 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 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.
The change in treatment of ISA’s on death have meant that any ISA investments held on death can be maintained and transferred to the surviving spouse.
To make a contribution, let us know and we will send over payment details.
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 £4,080 per child. This increases to £4,128 from 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 but actually corresponds to your child’s birthday year rather than the tax year.
HELP TO BUY ISAs
First time buyers aged 16 and over can apply for the new Help to Buy ISA’s which give a 25% bonus from the government on top of the usual tax free interest. A maximum of £200 per month can be saved plus an extra £1,000 in the first month. Parents and relatives can also add to the pot. The bonus is available on homes costing up to £450,000 in London and up to £250,000 outside of London and will only be paid if the savings are put towards a deposit on a property.
You are not able to open a Cash ISA and a Help to Buy ISA in the same tax year, but you can transfer up to £1,200 from an existing Cash ISA into a Help to Buy ISA.
Lifetime ISAs are being introduced from 6th April 2017 and there will be an impact on Help to Buy ISA’s and we will communicate this to you separately.
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 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 £11,100 and will remain at this level in the next 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.
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.