In financial services, this time of year means two things: the Budget and the end of the tax year on 5th April are on the horizon.
Here are some suggestions on financial planning steps to consider before the end of the tax year so that you can make the most of your tax allowances and organise your financial affairs as efficiently as possible. However, the first point to make is a practical one.
Our first suggestion as always is that if you’re going to act before the end of the financial year, don’t leave it until the last minute. If you want to make sure your transactions are processed in time, look to take action as early as you can, but no later than mid-March as the latest effective point to be able to implement change.
Pension contributions made, receive tax relief at your highest rate of tax.
The Annual Allowance is currently set at £40,000, if you are considering maximising your pension funding further, now is the time to make this contribution. For those planning on taking advantage of the new freedom and flexibility rules from 5th April 2015, your Annual Allowance may be reduced to £10,000, therefore it may be wise to use your higher allowance now.
There is scope to utilise any unused allowance from previous tax years as long as your contribution does not exceed 100% of your earnings in the tax year you make the contribution.
Making a pension contribution is an effective way of being able to retain some allowances and save tax.
If you are in receipt of Child Benefit and your income exceeds £50,000, making a further pension contribution can help retain this benefit whilst reducing tax and funding your future retirement.
One of the most tax efficient ways of saving is via a NISA (New Individual Savings Account). The income generated is exempt from income tax and in a Stocks & Shares ISA, all gains made are also exempt from capital gains tax.
The investment limit for the current year (2014-15) is £15,000 per person; it is also possible to invest up to £4,000 into a Junior NISA for any of your children that do not have a Child Trust Fund.
Capital Gains Tax
It is possible to generate gains of up to £11,000 this year which will be exempt for capital gains tax. This allowance, if not utilised, cannot be carried forward into the new tax year. The limit is per person and therefore, couples can dispose of assets held jointly to generate a gain of up to £22,000 without any tax liabilities. Furthermore, married couples can transfer assets to each other with no tax consequences.
The current nil rate band is £325,000 per person for IHT purposes.
Currently, you can gift up to £3,000 from your estate in the tax year without incurring any tax charges. Furthermore, if you did not use this limit in the previous tax year, it is carried forward to enable you to gift £6,000 this year.
In addition, it is possible to gift £250 per person each year under the small gifts exemption.
Income Tax Allowances
Are you and your spouse making the most of your allowances?
Consider placing all investments in the name of the lower paid spouse to ensure the lowest amount of tax possible is paid on the income generated.
If you anticipate your income to be in excess of £50,000 and your family currently receive Child Benefit, you should consider registering to stop payment of this benefit.
Continuing to receive this income means that you will have to complete a tax return to repay any Child Benefit you were not entitled to.
Hopefully, this is a useful overview of the tax planning opportunities available to you before the end of the tax year. If you would like any further advice or would like to discuss your options in more detail, please contact your Cullen Wealth Consultant.