As we approach the end of another fiscal year on 5th April, now is a good time to review your financial planning to ensure you have organised your affairs in the most tax efficient manner.
We have put together a checklist of some things you might wish to consider:
#1 Have you taken advantage of the Individual Savings Account (ISA) allowance? It is important to use this valuable allowance each year to reduce any potential income or capital gains tax (CGT). This can be in a Cash ISA, invested in a Stocks & Shares ISA, or split between the two in any combination. The benefits are many: there is no capital gains tax to pay when you sell shares or units held in an ISA, there is no tax to pay on interest or dividends earnt. Each person has their own allowance of £15,240 so a married couple could put up to £30,480 between them into ISAs this tax year (before 5 April).
#2 If you have children have you taken advantage of Junior ISAs? Junior NISAs (that replaced Child Trust Funds) can be a good long-term savings option where the savings grow tax free. In the tax year 2016/17, the Junior NISA allowance is £4,080.
#3 For investments outside of an ISA, you should consider crystallising any capital gains to make use of your “annual exempt amount”, which is currently £11,100 for 2016/17. Capital gains tax on investments are charged at 10% on your total taxable gains if you are a standard-rate taxpayer, and 20% if you pay tax at a higher rate. So taking advantage of the annual exemption amount makes sense to help prevent a large CGT bill when an asset is sold in the future. Married couples who own assets jointly can claim a double allowance of £22,200. Married couples can also make use of the spouse’s allowance by transferring assets between them before selling them.
#4 Can you transfer assets for tax benefits? Consider transferring savings and investments to your spouse if they pay a lower rate of tax than you do. Complex rules apply, but if appropriate to your particular situation, it could provide benefits for income tax, capital gains tax and even inheritance tax.
#5 Top up your pension - Personal contributions to pension schemes attract tax relief at your highest rate which makes saving in a pension an attractive idea, and with new pension freedoms announced, access to your pension pot is no longer as restrictive as it was. For pension contributions to be applied against your 2016/17 income, you must pay on or before 5 April 2017. There is a basic annual allowance cap on pension savings of £40,000 for the 2016/17 tax year. (This is reduced by £1 for every £2 that adjusted income excess £150,000 subject to a minimum allowance of £10,000) If you do not have any earnings you can still contribute £3,600.
#6 Use your annual IHT gift exemption For inheritance tax (IHT) planning you could consider using your annual gift exemption of £3000 per person. Also if you did not fully utilise this allowance in the last tax year you can carry back one year, meaning a couple could potentially gift £12000 now, saving £4800 in IHT. You can also give up to £250 a year to as many people as you want (but not to those who have benefited from the IHT annual gift exemption) in the same tax year.
#7 Consider giving - Charities can reclaim tax on any donations made by individuals, whether large or small, regular or one-off – provided the conditions for the tax relief are satisfied. Gift Aid donations are regarded as having basic rate tax (20%) deducted by the donor. If you are in a higher tax bracket, you can claim back the difference between the basic and higher rate of income tax on any Gift Aid donations. You can do this on your Self-Assessment form.