With the end of the tax year fast approaching, now is the time to review your financial arrangements and, where possible, utilise the allowances and exemptions that are available.
The transferrable personal allowance allows couples (married or civil) where one is not fully utilising their personal allowance (currently £11,500) to transfer up to £1,150 to their partner, as long as they are a basic rate tax payer, giving them a potential tax saving of £230.
For those earning between £50,000 and £60,000 with children face the loss of Child Benefit. In a similar vein, those earning above £100,000 will suffer a reduction in their personal allowance. For both of these contributions into a personal pension could bring earnings below the thresholds and potentially benefit from up to an effective 60% tax relief.
The dividend tax free allowance reduces in the new tax year from £5,000 to £2,000. Above this limit, tax is applied on a tiered basis. Apportioning shares with your partner may help to reduce the potential tax charge. Alternatively, retaining your investments within tax beneficial wrappers, such as an ISA or Offshore bond.
Capital Gains Tax
The annual capital gains tax allowance is currently £11,300 and is on a use it or lose it” basis. If you have already utilised your own CGT allowance for the current tax year, then it may be possible to transfer assets to your spouse (or civil partner) so they can utilise theirs.
Investors may wish to utilise their annual ISA allowance (currently £20,000) to shelter funds from income, dividend and capital gains tax. ISAs can hold cash, investments, or a combination of both. In addition for those looking to buy a house or help fund their retirement, the Help to Buy and Lifetime ISAs may be useful and are eligible for a bonus under certain circumstances.
Pensions continue to offer very attractive tax breaks sheltering funds from income, capital gains and inheritance tax (in most circumstances). Contributions also benefit from tax relief at the individuals highest income tax rate. Under the current rules, at retirement 25% of the fund can be taken tax free and there is considerable flexibility in how the benefits from the remaining fund can be withdrawn to provide for your retirement.
Under current rules the maximum annual contribution for tax purposes is £40,000. Any unused allowance can be carried forward for up to three years enabling those with the resources to make a larger contribution. For higher earners with total income in excess of £150,000 the Annual Allowance will be restricted on a sliding scale to £10,000.
This is only a very brief overview of planning issues and if you would like to discuss your options with one of our team of Chartered Financial Planners please contact Cave & Sons for a no–obligation initial discussion on 01604 621421 or email firstname.lastname@example.org.
The value of an investment and the income from it could go down as well as up. You may not get back what you invest.
This communication is for general information only and is not intended to be individual advice. It represents our understanding of law and HM Revenue & Customs practice as at (15/02/2018). You are recommended to seek competent professional advice before taking any action.’
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Tax and estate planning services are not regulated by the Financial Conduct Authority (FCA)