Mañana, mañana is probably a phrase that many of us use when we don’t have a pressing deadline. It’s particularly easy to put off some aspects of financial planning when investment markets are in such a tizz.
With the end of the tax year fast approaching, I hope this article acts as a useful aide memoire for you.
Have you used all of your possible allowances?
»The annual exemption is £3,000 for each of us. This allows us to make a gift which is immediately exempt from Inheritance Tax (IHT). We can carry forward any unused allowance from the previous tax year. An increasing number of clients are using this (as an alternative to the ‘normal expenditure out of income’ exemption) for making pension contributions for a child or grandchild. Remember, even if the child has no income, Basic Rate Income Tax relief is rewarded on contributions up to £2,880 net per tax year.
»Small gifts exemption. You can make IHT free gifts of up to £250 to any number of individuals each year.
»Normal expenditure out of income. Although not an annual exemption, I think it’s worth reminding you that regular patterns of gifts from your regular income that don’t reduce your standard of living would be immediately outside of your estate for IHT purposes.
ISAs In the current tax year, you can save £10,680 in ISAs. Up to half of this can go in a Cash ISA. The remaining balance (up to £10,680 if you don’t take a Cash ISA) can be invested in a Stocks & Shares ISA.
Remember to review your Cash ISAs annually, as many banks and building societies offer 1 year incentives/ bonuses. They are relying on our inertia for these products to be profitable.
As you know, the government spends big on welfare, Armed Forces, State Pension and pension tax relief. You will also be aware that the Chancellor is working to reduce the UK’s debt.
Some industry commentators are starting to speculate that a reduction in pension tax relief would have the least impact on economic growth and so, might be on the cards.
I therefore suggest that you try to maximise pension contributions before the budget on 21st March 2012. Remember that you can invest up to 100% of your earned income into a pension. This is capped at £50,000. You can also carry forward any unused £50,000s from the last 3 years.
PeYour Personal Allowance will reduce by £1 for every £2 over £100,000.
Income over £150,000 is now taxed at 50%.Pension tax relief is particularly attractive for those earning over £100,000 because:
»Your Personal Allowance will reduce by £1 for every £2 over £100,000.
»Income over £150,000 is now taxed at 50%.
If you expect your income to increase beyond £100,000 next year, you may prefer to delay making contributions until then to achieve more tax relief.
For married couples and those in civil partnerships, it is legitimate to transfer assets from one partner to the other.
If one of you is in a higher Income Tax band than the other, consider transferring savings to mitigate tax.
Capital Gains Tax
We each have an annual Capital Gains Tax (CGT) allowance of £10,600 in year 2011/12 and it is frozen for 2012/13.
If you are sitting on capital gains that can be fairly easily realised, it is certainly worthwhile utilising this valuable allowance.
It is not too difficult to imagine this allowance remaining frozen for several years, particularly given that the rate charged on realised gains above the allowance is only 18% (for Basic Rate taxpayers) and 28% (for Higher Rate taxpayers) compared to the highest Income Tax rate of 50%.
Warning - The views expressed in this summary are reached from our own research. COURTIERS cannot accept responsibility for any decisions taken as a result of reading this document and investors are recommended to take independent professional advice before effecting transactions. The price of stocks, shares and funds, and the income from them, may fall as well as rise. Past performance is not necessarily a guide to future returns.