The tax year end is fast approaching, and the last day of the tax year falls on Thursday 5th April. Below are some simple but effective things you can do to make the most of your tax allowances before the end of the tax year.
If possible, utilise your ISA allowance. Any capital gains or income from your investments in an ISA are tax exempt.
Interest rates on cash ISAs remain low, and you may wish to explore a stocks and shares ISA with us to help your money work harder. Each individual can invest £20,000 for tax year 2017-18, and in tax year 2018-19.
A couple could save £80,000 into ISAs over the next few weeks. The dividend income allowance is falling from £5,000 to £2,000 on 6th April 2018; shielding your investment income from tax will become even more important.
Please note that your ISA allowance is a personal allowance for all ISA accounts. If you have already made an ISA subscription elsewhere, please let us know so we do not over-subscribe you beyond your limit.
This year’s allowance is £40,000. You can carry forward up to 3 years worth of unused allowances up to £40,000 each year. With qualifying earnings, a contribution of up to £160,000 could be made when utilising carry forward allowances.
Please note that if you earn over £150,000 per annum, your allowance is reduced by £1 for every £2 of excess earnings. It is important to utilise carry forward allowances as the taper only applies to this tax year (2017-18) and the previous tax year (2016-17) (as well as future tax years).
The investments in your pension can be left to grow without incurring capital gains tax and income tax. Tax is normally only payable when you take money from your pension. Pensions are also valuation inheritance tax vehicles.
If you die before the age of 75, your beneficiaries could inherit your pension free of tax. If you die over the age of 75, the taxes on your pension are much lower than they used to be.
To find out more, please contact us. Pensions are complicated, so please get in touch to see how we can help you in the new regulatory environment.
Capital Gains Tax (CGT)
Utilise your annual CGT allowance, which is £11,300 for 2017-18. You cannot carry this forward to use in future years like your pension allowance, so it is important to make the most of it if you can.
- Losses in one tax year can be offset against gains in that tax year, with some exceptions.
- Accumulated losses you have from earlier years can be brought forward to offset against your gains.
- Transfers can be made between spouses and civil partners free of tax, so you can utilise part or all of their allowance if they have not used it.
The rates of capital gains tax have come own for most types of assets, to either 10% or 20% depending on your level of income. If you want to avoid paying capital gains tax, consider putting your investments into an ISA or pension.
The above points are suggestions only, and might not apply to your own personal situation. This is not an exhaustive list and there are other ways in which we may be able to help you.
Risk Disclaimer: The value of investments and the income you get from them may fall as well as rise, and there is no certainty that you will get back the amount of your original investment. You should also be aware that past performance may not be a reliable guide to future performance. This document is not intended as investment advice. Any security mentioned in this commentary is for information purposes only and is not a recommendation to buy.