There are still a few weeks to go for year-end tax planning, so here are a few guidelines to help you make any last minute plans.
Whilst a relatively non-eventful budget, there were changes enough to make you look at your Isa’s and pensions.
To start with, it obviously makes sense to utilise the whole of your £15,240 Isa allowance, if possible, particularly given the imminent changes to the tax-free dividend allowance announced in the Spring budget. This will fall from £5,000 to £2,000 a year from April 2018, so investors should look to act now to make the most of the current allowance while they can. Remember, the Isa allowance cannot be carried forward to the next year.
Isas offer protection from tax on interest, dividends and capital gains, which can be important for higher rate taxpayers.
As well as your Isa allowance, you should also consider the annual capital gains tax (CGT) exemption of £11,100. This should be maximised, potentially by cashing in investments before the end of the tax year to reduce your tax liability, especially as the allowance cannot be carried forward to the next tax year. Talk to your Kellands adviser for advice on this.
On the pension’s front, the budget confirmed the previous announcement that the contribution allowance will fall from £10,000 to £4,000 with effect from 6th April 2017. This £10,000 allowance applies to those who have already flexibly accessed one of their pensions.
So to optimise this tax year's £10,000 allowance, you need to act before 5th April 2017. Remember, you need earnings of at least the amount you contribute. If not, the most you can invest is £3,600. For more information and advice on this, talk to your Kellands adviser.
On the Inheritance Tax Planning (IHT) front, you should look to make use of the annual IHT gift allowance of £3,000. You can also use any unused allowance from the previous tax year (2015-16). Regular gifts out of excess income can also be exempt but you need to ensure that you keep documentation to show that the gifts are being made from income rather than capital.
No doubt, you will have considered most of these options well in advance, but most of us need to do some last minute planning. If you do, contact us for help and advice.