The end of the tax year may seem some time away but many people leave it too late to fully utilise their tax allowances. We have outlined some areas below that you could consider to make the most of your “use it or lose it” tax allowances for the 2018/19 tax year. “
Pensions – maximise tax relief
Making a pension contribution is a good way of reinstating your tax-free personal allowance as they reduce your taxable income. Pension contributions can also help higher earners obtain the full child benefit.
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”.
Carry forward, is where unused allowances from previous years may be used up in the current tax year. Those with sufficient earnings can use carry forward to make contributions in excess of the current annual allowance. This will also be the last chance to benefit from the potential double annual allowance for 2015/16.
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.
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 £4,260.
Capital Gains Tax (CGT)
Each individual can take investment gains of £11,700 (2018/19) 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 £23,400 before tax is due.
Higher or additional-rate taxpayers crystallising gains in excess of the annual CGT exemption, might want to consider making a personal pension contribution. This could result in the capital gains being taxed at 10% rather than 20%,
Although you may not be able to afford to give away large sums of money immediately, you might make smaller gifts using the IHT exemptions.
Each financial year you can make gifts of £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 2017/18. 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.
If you do have larger funds available, you may wish to take the opportunity to do some trust planning and start the seven year clock ticking.
Don’t leave it to late
Although, we still have some time before the tax year end on the 5th April, it is best not to leave things until the last minute as tax can be a very complex area.
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.
t. 01483 508580
Please note: This article is not meant to constitute professional advice and is generic only – please seek specific advice for your circumstances.