As always, the end of the tax year (5th April 2014!) is an important date in anyone’s financial planning calendar. In most cases, tax allowances end with the tax year and making the best use of them while they are available can mean a big difference to the eventual returns from your savings and investments.
We have therefore put together some hints and tips which will hopefully guide your financial planning as the end of the tax year approaches. As always, if you have any questions on any of the points below don’t hesitate to get in touch with us.
First and foremost make full use of your Individual Savings Account (ISA) allowance. The limit for 2013/14 is £11,520 but if you don’t use it by April 5th it is lost. Husbands and wives both have an allowance, and from April 6th the limit will rise to £11,880. If you are saving for children don’t forget to make use of Junior ISAs.
An often overlooked allowance is your annual Capital Gains Tax allowance. The amount for the current year is £10,900 (rising to £11,000 in 2014/15) and again both husband and wife have the allowance – so there is scope for transferring assets between you in order to reduce your tax bill.
If you believe that your estate might be liable for Inheritance Tax (the current limit is £325,000, which is frozen until 2017/18) then it makes sense to do something about it. Inheritance tax is an area where a little planning can go a long way. First of all you can make annual gifts of £3,000 free of any tax liability and also use any unused allowance from the previous year. You can also make gifts from regular income, providing they don’t reduce your ‘normal’ standard of living. It’s also possible to make IHT–free investments, although that is probably outside the scope of these relatively basic notes.
An increasing number of employers now offer arrangements whereby employees cansacrifice salary for approved share options or pension contributions. It may be worth talking to your employer to see if this is possible, as it can be very tax efficient for both the employer and the employee.
Irrespective of the position with your employer it always makes sense to review your pension arrangements, particularly with the Government reducing the Pension Lifetime Allowance from 6th April 2014. The reduction to £1.25m has potentially serious implications for many people and if you feel that you may be affected you should get in touch with us.
At the same time the Annual Allowance for pension contributions will reduce from £50,000 to £40,000. Whilst you can pay unlimited amounts into a pension plan, this is the maximum amount that you will be granted tax relief on. Bear in mind you can also carry forward the previous three year's unused allowances too, once you have used this year's allowance.
You can also start pension contributions for your children, even if they do not have any earnings. A net contribution of £2,880 will be grossed up to £3,600 with tax relief – a generous donation from the taxman!
If your spouse doesn’t work – or earns less than the annual personal allowance – youshould consider moving assets into his or her name. This is a perfectly legal and sensible tax planning move. Again, we will be happy to give you advice on how to do this.
Remember that interest paid on bank and building society deposits will have tax deducted at 20%. If you do not pay tax then you can sign a form to have the interest paid without the deduction of tax. Alternatively, you can submit a repayment claim to HMRC. Again you could consider moving savings into your spouse's name if he or she is a lower rate tax payer than you.
Finally, make a will. Over half the UK adult population do not have a valid will and dying without one (dying ‘intestate’) can have serious implications for your financial affairs. Don’t assume everything will go to your spouse – it may not! A good will can minimise tax and give your family security and protection. We will discuss the points that you need to consider and we’ll work with your solicitor to make sure that your will accurately and clearly reflects your financial planning.
Hopefully the above points will help you plan for the end of the tax year and make the most of the allowances that are available. Remember, they largely disappear at midnight on April 5th (which is a Saturday this year, so for practical purposes the last day of the financial year is Friday April 4th.) As above, if you have any questions on any of these points or suggestions then we are only a phone call or an email away.