The end of the tax year is fast approaching, and we understand that no-one wants to pay more tax than they have to. It’s important to not miss the deadlines as there can be consequences for doing so. Our Bolton Accountants set out some straight-forward but important tax planning opportunities which you should be considering now, using your savings and personal allowances.
The 2016-17 CGT annual exemption is £11,100 per person. Any gains above this are charged at 10% or 20% per cent depending on whether you are a basic or higher rate taxpayer (there is a higher rate of CGT of 28% on the sale of UK residential property.) You may wish to review the ownership of your assets if you are a married couple/civil partnership to mitigate any CGT liabilities as far as possible by transferring assets to the lower rate tax payer or ensuring they are held equally. If you are married or in a civil partnership you have a combined CGT annual exemption of £22,200 and the transfer/gift of assets between a husband and wife/civil partner is tax-free.
Each individual has an Inheritance Tax (IHT) Nil Rate Band (NRB) of £325,000 for 2016/17, this being the value on which an Estate would have no IHT to pay, resulting in £650,000 NRB per married couple/civil partnership. Any assets valued above this could be exposed to tax at 40% on death (reduced to 36% if at least 10% of the estate is left to charity.) Utilising reliefs available during lifetime is a simple way of reducing IHT exposure.
Individuals can make gifts of up to £3,000 per year without any IHT consequences, this is known as your ‘annual exemption.’ You can carry any unused annual exemption forward to the next year – but only for one year. In addition to this annual exemption, if a wedding is on the cards each parent can give £5,000 to the happy couple and grandparents can give up to £2,500 with any well-wishers £1,000.
It is also possible to make normal gifts out of income, e.g. for Christmas or birthday’s, however, these gifts should not impact on your usual standard of living after making the gift. For this reason we would recommend a thorough review of your asset position before making any gifts or transferring assets.
From April 2017 a main residence nil-rate band (RNRB) has also been introduced which is in addition to the IHT NRB of £325,000. This applies when a residence is passed on death to a direct descendant and will be phased in from April 2017, starting at £100,000 and rising to £175,000 in 2020/21.
With house prices remaining high the number of estates exceeding the threshold is continuing to increase so it makes sense to plan properly during lifetime to ensure that you are effectively utilising all available allowances.
Married couples and civil partners could save up to £220 a year (for 2016/17) using a tax break launched in April 2015 known as the Marriage Allowance.
If one partner has income of £11,000 or less (i.e. under the personal allowance threshold) and the second partner is a basic rate tax payer (i.e. income under £43,000 a year) up to £1,100 of personal allowances can be transferred to the basic rate tax paying partner/spouse. Marriage Allowance applications can be made online and it is also possible to claim for the previous tax year (i.e. 2015/16) if a claim for this year has not already been made and could result in a total tax saving of up to £432. Make sure you claim the Marriage Allowance your entitled to.
Each person has a dividend income allowance of £5,000 which is tax free. Married couples and civil partners should consider organising their portfolios so that they both make use of their full allowance.
This allowance will be cut to £2,000 from 6 April 2018, so it is important to make use of the tax-free £5,000 while it is still available.
Matthew Bromley, Chartered Financial Planner explains some useful financial planning tips to consider before the end of the tax year.
You do not pay tax on any interest earned or dividends received on investments held within an ISA. Also, any gains realised on the sale of stocks and shares held within an ISA wrapper are free from Capital Gains Tax (CGT.) With the ISA annual investment allowance of £15,240 for adults and £4,080 for Junior ISAs, it’s worth considering topping up your savings before 5 April.
You can get tax relief on pension contributions up to the lower of £40,000 or 100% of your earnings for the year 2016/17. Plus, you can utilise any unused allowance from the previous three tax years.
A significant change was introduced for high earners from 6 April 2016 to taper the annual allowance from £40,000 to £10,000 in certain circumstances, resulting in a restriction to tax relief on pension contributions. The reductions start for those with income of over £150,000 (including employer pension contributions) so if you leave it too late your ability to contribute could be significantly reduced.
Income planning for high earners, including the maximising of pension contributions, should be considered as soon as possible.
Higher rate tax payers can claim income tax relief in connection to donations made to charity during the year. For every £100 donated the charity claim Gift Aid to make your donation £125. If you pay tax at 40% you can personal claim back £25 (i.e. the higher rate tax of higher rate tax relief can be obtained by the individual. Always make sure that you are including details of contributions made on your tax return for the year or write to HMRC to provide details of your earnings for the year and details of charitable donations made.
In summary, we all have to pay our taxes, but there are numerous ways of saving tax and making sure you don’t pay more than is absolutely necessary.
Whilst the above options may be applicable to you. It’s important to discuss them with your professional advisor to ensure all of your individual circumstances are taken into account. If you would like to explore the options available to you in preparation for the 2016/17 tax year end, please contact our Bolton Accountants to discuss in further detail on 01204 414 243.
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4 July 2019
With a major shake-up in the treatment of VAT in respect of building work is imminent – our Senior VAT Manager, Carolyn Van Hecke, highlights the implications for those in the construction industry and why it has never been so important to apply the correct VAT treatment.