The end of the tax year will soon be here and you don’t want to miss out on using available allowances before then. A change in circumstances, whatever that might be, may mean that more allowances are available to you so do take the time to review the list below to check you’ve covered all your bases. The earlier your tax year end planning starts the better, so get in touch if you have any questions or would like us to walk you through any of these opportunities.
Here is a list of all the main tax planning opportunities available to you IN BRIEF (read more about each below):
- 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 £20,000 each
- Junior ISAs/ Child Trust Funds – maximum contribution of £4,128 per child
- Venture Capital Trusts (VCTs) – maximum of £200,000 investment 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 – £11,300 per person
If you have not used your allowances and want to do some planning before the end of the tax year, then please contact us ASAP so we can arrange this 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.
Did you know?
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.
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 £4,128 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.
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 £11,300 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. We look forward to hearing from you.