We are getting in a little earlier this year to make sure that you are aware and are using all of the tax efficient allowances available to you. There are some big changes coming up in April and you may need some time to do a bit of planning.
First of all, to follow is a list of all the main tax planning opportunities available to you:
- Pensions – current Annual Allowance of £40,000 and could be the last opportunity to take advantage of larger contributions and higher/additional rate tax relief
- Individual Savings Allowances (ISA’s) – maximum contribution of £15,240 each
- Junior ISA’s/ Child Trust Funds – maximum contribution of £4,080 per child
- Help to Buy ISA’s – maximum of £200 per month with an extra £1,000 in the first month
- Venture Capital Trusts (VCT’s) – 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 person
At the moment you can contribute up to £40,000 per year and still receive tax relief at your highest rate. From the 6th April, the amount you can contribute will be restricted for anyone earning over £150,000 and it could be as low as £10,000 per year.
However, 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 the new restriction (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.
We think there may well be a change to the rules around tax relief to be announced on March 16th. It is widely expected that Mr Osborne will be planning a flat rate ‘savings incentive’ of between 25% and 33% across the board. If you are a higher or additional rate tax payer, you should look to contribute as much as possible before that date to ensure you benefit from the highest rate available.
As you know there have been a lot of changes in the pension world and I have included a link our earlier communication on this topic for all the detail.
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 £15,240 and it will remain at this level in the new tax year. 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.
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. Again this allowance will remain the same in the new tax year.
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 ISA’s
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. About 14 or so Banks have signed up to the scheme with Halifax offering the best rate at 4% variable at the moment (as per their website on 01.02.16)
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.
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. 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
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. I would especially urge anyone looking to ensure their pension is funded fully before 16th March to get in touch.
We look forward to hearing from you.