Time is now running out for savers and investors who want to make the most of their “use it or lose it” tax allowances for the current tax year. The end of the tax year seems some time away but many people leave it too late to fully utilise their tax allowances.
We have outlined a number of areas that clients may wish to consider:
Pensions – As a reminder, pension contributions are a good way of reinstating your tax-free personal allowance as they reduce your taxable income.
Some high earners are limited as to the amount of tax-efficient pension saving they can enjoy, with the maximum reducing to £10,000 in some cases. However, it may still be possible to reinstate the full £40,000 allowance by making use of “carry forward”, which is where unused allowances from previous years may be used up in the current tax year.
Please note, if you have triggered the Money Purchase Annual Allowance (MPAA), the maximum tax-efficient pension contribution you can make will also be reduced.
ISAs – Unlike pensions, you are not able to carry forward your ISA allowance so if you do not use it this tax year it will be lost for ever. The ISA allowance for this tax year is £20,000 so it makes sense to save as much as you can to maximise this tax benefit. You might also want to top up a child’s Junior ISA where the maximum is £4,128.
Capital Gains Tax – Each individual can take investment gains of £11,300 without having to pay Capital Gains Tax. If you have made gains on shares or investment funds during the year, it might be worth taking some profits before they become taxable. Spouses can transfer assets between them without triggering a capital gain, allowing them to effectively make gains of £22,600 before tax is due.
Inheritance Tax – Although you may not be able to afford to give away large sums of money immediately, you might make smaller gifts.
Each financial year you can make gifts of up £3,000 (in total not per recipient). If you did not make full use of last year’s £3,000 exemption you can make gifts covering both this year’s allowance and 2016/17. You can also make small gifts of £250 to any number of people, as long as you haven’t used another exemption on the same person
Although there is still some time before the tax year ends on the 5th April, it is best not to leave things until the last minute. Tax can be a complex area and we strongly recommend that you speak to a professional adviser before any action is taken.
Should you wish to discuss any of these areas in more detail please feel free to contact Peter or Nick.
t. 01483 508580
Please note: This is not meant to constitute professional advice. It is generic advice only – please seek specific advice for your circumstances.