With a new tax year upon us (beginning 6 April 2018), it’s important to ensure you’re making the most of your allowances. Here’s a quick year-end checklist to help.
Pensions are the most tax efficient way to save. Contributions are subject to tax relief, on the way into the pot, at an individual’s marginal rate of income tax (from at least 20% up to 45% tax relief).
Pensions can be invaluable for funding life in retirement and effective for leaving a legacy for family generations and beneficiaries. Savings can pass free of inheritance tax (IHT) to beneficiaries including lineal descendants (children, grandchildren, great-grandchildren etc).
You don’t need to be earning to save. You can contribute up to £3,600 to a personal pension, so a pension could be set up for a partner or children. Even while they don’t pay tax, they can still benefit from 20% tax relief.
Carry it forward: unused annual allowances can be carried forward for up to three previous tax years to offset against a contribution of more than the annual limit. While there are certain rules which your adviser will explain in detail throughout the planning process, there’s a valuable opportunity to maximise the tax relief and your pension pot overall.
Individual Savings Account (ISA) Allowances
ISAs are a simple, tax efficient way to invest or save and can help maximise your funds while offering the flexibility to access money tax-free when needed.
Invest up to £20,000 tax-free in ISAs this tax year, if over the age of 18 years old*.
ISAs offer valuable protection from Income and Capital Gains Tax, and those who use their ISAs as part of their income strategy avoid the need to declare these withdrawals on their self-assessment returns.
Use it or lose it: if you do not use your allowance by 5 April 2018, this allowance disappears and cannot be reclaimed.
Capital Gains Tax (CGT) Allowance
In the 2017/18 tax year, individuals have an annual CGT exempt amount which makes the first £11,300 of gains tax-free.
Depending on your level of income, timing your disposals either before or after the end of the tax year could result in more of your gains being taxed at 10% rather than at 20%.
Use it or lose it: you cannot carry this allowance forward so where possible, use it by realising gains.
Inheritance Tax (IHT) Planning.
While most IHT planning does not relate to the tax year end, a number of reliefs and exemptions do:
Reminder: IHT is payable if a person’s assets at death, plus gifts made in the seven years before death, add up to more than the nil rate band, currently (and until 2020/21) £325,000. An additional nil rate band of £100,000 in 2017/18 (increasing to £125,000 in 2018/19) is available where a main residence is left to direct descendants.
Explore and discuss options. Investing a small amount of time now could save a lot in future. End of tax year opportunities are one way to help maximise returns on your investments and can be factored into a broader strategy.
For more information and assistance, speak to your adviser.
Paul Kemsley BSc (Hons), Dip CII
Tax treatment depends on individual circumstances and may be subject to change in the future.
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