March 1st, 2017 / Insight posted in Articles

Use it or lose it: The end of the tax year is approaching…

As the end of the tax year fast approaches, have you made the most of your allowances?

Kingston Smith Financial Advisers’ End of Year Tax Action Plan highlights what you need to be thinking about before the end of March, including these four areas, which are frequently overlooked:

Personal allowance
Personal allowance increased to £11,000 per individual for 2016/17. If you have taxable income of £100,000 or more you will start to lose your personal allowance, with it being withdrawn in full for individuals with income on excess of £122,000. Tax planning can include:

  • Transferring income-producing assets to a spouse/civil partner paying tax at a lower rate;
  • Charitable donations under Gift Aid for reducing your adjusted net income;
  • Transfer assets from other relatives to use minor children’s personal allowances and basic rate band;
  • A pension contribution will also reduce your adjusted earnings and thus claw back the personal allowance.

ISA allowance
The ISA allowance remains at £15,240 for 2016/17, and is set to increase to £20,000 from April 2017. With the ISA allowance rules becoming more flexible, you can save your full allowance into a stocks and shares ISA, a cash ISA, or combination of both. You can also transfer from stocks and shares ISAs into cash ISAs.

The limit for Junior ISA and Child Trust fund is £4,080. Meanwhile, there will be a new Lifetime ISA available from April 2017 whereby those aged between 18 and 40 can save up to £4,000 each year and receive a bonus of 25% from the government.

Since 6 April 2016 those with an adjusted income of £150,000 or more will see the Annual Allowance of £40,000 restricted down to a maximum of £10,000. This is the maximum amount of tax relief on pension savings that can be made per year. Tax planning can include:

  • The £50,000 carry forward allowance from 2013-14 falls off the scale after 5 April;  the potential carry forward amounts will be £50,000 from 2013-14 but just £40,000 from 2014-15 and 2015-16;
  • Making a net contribution of up to £2,880 (£3,600 gross) before 5 April 2017 for members of your family, even for those who do not have earnings, including children;
  • Salary sacrifice can reduce National Insurance contributions and reduce the rate of tax paid on other assets and income;
  • Pension contributions reduce income for the purpose of the child benefit tax charge – child benefit is worth over £2,500 to a family with three children and is cancelled out by the tax charge if the taxable income of the highest earner exceeds £60,000. There is no tax charge if the highest earner has income of £50,000.

Capital/income losses
5 April 2017 is the deadline for making a claim to HMRC for 2012/13 capital and income losses. These could be really valuable in reducing the tax you pay to HMRC and could even result in a tax refund. Act now and make sure you don’t lose your losses!

Click here to view the full tax planning action plan, which covers the following areas:

  • Capital Gains Tax
  • Income Tax
  • Personal allowances
  • Pensions
  • The Lifetime Allowance
  • Savings allowance
  • ISA allowance
  • Dividends
  • Investments
  • Estate planning