There are a number of top tax tips to do before the fiscal year-end. Looking beyond the imminent tax return deadline, in the world of accountancy and financial services, this time of year means two things are on the horizon: the end of the tax year on 5th April and the next Budget.
Now is the time to review your finances and make sure your money is working as hard as possible for you. Don’t leave it until the last minute and miss the opportunity to implement any of your chosen strategies.
1. Review your child benefit
If you anticipate your income will be more than the £50,000 threshold which triggers the loss of some child benefit, you should consider legal ways of keeping your income levels down, such as making additional contributions to your pension, or increasing your charitable donations.
We suggest that you do not proactively register to stop receiving child benefit until your income is closer to £60,000 if you are already completing a self-assessment tax return, as this is the level at which you lose all of your child benefit (due to the clawback rate of 1% of child benefit for every £100 over the initial £50,000 threshold). It is much more difficult to reclaim child benefit which should have been due to you, than to pay back any overpayments received.
2. Use your ISA allowance
Still one of the most tax efficient ways for you to save – call them ISAs (Individual Savings Accounts) or NISAs (New ISAs), if you are a UK resident aged 18 or over you can invest up to £15,240 this financial year. You can choose how to invest this money to suit you – stocks and shares, cash or a combination of both. Please see your financial advisor to ascertain the best route for you.
For those of you aged 16 or 17 you also have an ISA allowance of the same amount, but this can only be invested in CASH.
Parents (or for that matter grandparents, god parents, uncles, aunts, friends and acquaintances) can also invest up to £4,000 into JISAs (you guessed it – Junior ISAs) for any child under the age of 18. Each child can have a maximum of £4,000 deposited into their ISA over the course of the tax year, regardless of where it came from, but do remember that this money belongs to the child as soon as they reach 18 years of age.
The key thing to remember is that you either ‘use it or lose it’, so don’t miss the deadline for moving your money!
3. Review your IHT position
If your estate (which includes your family home valued at today’s prices) is likely to exceed the current nil rate band of £325,000 per person then you should consider taking advice to reduce the 40% Inheritance Tax which will be payable when you die.
There are a number of things you can do, such as ensuring your use your maximum annual allowance by gifting up to £3,000 from your estate per year to loved ones without incurring any IHT. (You can carry over leftover exemption from one year to the next, but the maximum exemption in any one year is £6,000)
In addition to this it is also possible to make small gifts of up to £250 per person to as many people as you like under the small gifts exemption.
Furthermore, if there are any weddings on the horizon, make the most of your gifting opportunities – there is no tax on gifts up to £5,000 to your child, £2,500 to a grand or great-grandchild, and up to £1,000 for anyone else.
Speaking of weddings, it is wise to mention that any amounts will pass tax free from one spouse to another provided you are married or in a civil partnership. Co-habiting or common law spousal status does not count!
4. Make the most of your personal 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. Or if you are a basic rate tax payer and your spouse is a non-tax-payer consider transferring up to 10% of your personal allowance to your tax-paying spouse effectively saving 20% tax on this amount.
5. Utilise your tax free capital gains allowance
Everyone has a small CGT (Capital Gains Tax) allowance, which equates to £11,100 per person or £22,200 for couples who hold their invested assets jointly. This means that you can sell or otherwise dispose of any assets such as stocks, shares, jewellery, property and other valuables worth over £6,000 without paying any tax on the first £11,100 of the gain made.
Just like ISAs, this is a ‘use it or lose it’ opportunity – it is not possible to carry one year’s allowance over to another year, however married couples can transfer assets to one another with no tax consequences as long as the transfer is ‘outright and unconditional’ (in other words a truly genuine gift with no strings attached).
6. Maximise your pension contributions
It’s still probably still the most tax efficient way to save money (especially if your employer also contributes to your personal pension), but the rules around pensions are yet again changing.
While the annual allowance is currently set at £40,000, from 6th April 2016 higher earners earning more than £150,000 (and to a certain extent more than £120,000) per annum will have their annual allowance reduced to £10,000.
There is also scope to further maximise your pension contributions by utilising any unused allowance from previous tax years, as long as your total personal contribution does not exceed your total earnings in this tax year. Maximum contributions for previous years are £50,000 for the years 2012-2013 and 2013-2014 and £40,000 for the year 2014-2015. Going forward it’s a double whammy for those higher earners as any carry forward will also be limited to £10,000 per annum, so do what you can now to make the most of this opportunity.