A leading firm of Stockport financial planners is urging savers and investors to check they have made the most of the tax reliefs available to them in the current tax year, which ends on 5 April.
Individuals should act now to make sure they do not miss out, according to Stockport financial planners, Prest.
The Hazel Grove firm of Chartered Financial Planners advise that there are a wide range of tax reliefs and allowances available to UK investors. Among the most common, and effective, are the annual ISA allowance, the annual allowance for pension contributions, the annual capital gains allowance and the yearly gift allowance that helps minimise future inheritance tax bills.
Mike Walker, Financial Planner at Prest Financial Planning, said,
The tax year ends on 5 April 2018, meaning that only a few weeks remain in which individuals can maximise their use of this year’s allowances. An early Easter will wipe out two of the last five working days of the tax year so anyone who wishes to minimise their 2017/18 tax bill should not leave things to the last minute.
“Many of these tax reliefs can be very valuable so I urge investors to make the most of them. Everybody’s circumstances are different, though, and all forms of tax planning can contain pitfalls, so we would always recommend that people speak to a suitably qualified financial planner before they act.”
The ISA Allowance
£20,000 can be saved tax-efficiently per person, per year, in an individual savings account (ISA). That’s £40,000 per couple, and these savings can be held in cash, stocks and shares, or a combination of the two.
Any future capital growth, dividends or interest will be free of capital gains and income tax while the investment remains within an ISA. The annual ISA limit is a “use it or lose it” allowance – it can’t be carried over into the next tax year.
Individuals can receive tax relief on pension contributions of up to 100 per cent of their earnings in 2017/18, subject to an annual cap of £40,000 for most investors who have not yet started to draw an income from their pension savings. Individuals with no earnings can also receive basic rate tax relief on pension contributions of up to £2,880.
Tax relief is available from the government at the saver’s highest rate of income tax, subject to them having paid enough tax at the higher or additional rate to cover the amount being reclaimed. This means a pension contribution of £1 will only cost a basic rate taxpayer 80p from their net (after tax) salary and a higher rate taxpayer could potentially make a £1 contribution at a net cost of just 60p.
The rules governing pension contributions are complex, with a number of dangers for the unwary. Prest recommends that investors speak to a properly qualified financial adviser before making significant changes to the amount they pay into a pension.
Capital gains tax
Capital gains tax is charged on the amount of profit made by an individual who sells an asset – for example a second home or a portfolio of shares. It is not based on the total sale price but on the difference between the price originally paid and that for which it is sold.
The government permits individuals each to make tax-free gains of up to £11,300 in the tax year 2017/18. A popular use for the annual capital gains tax allowance is to sell shares held in a non-tax-exempt account and reinvest the proceeds in an ISA.
Lifetime gifts to beat inheritance tax
Individuals can each make gifts of up to £3,000 in any tax year that will automatically reduce the size of their estates for the purposes of inheritance tax. Any unused allowance from the previous year can also be “carried forward”.
This means a married couple could between them potentially make tax-free gifts of up to £12,000 before 5 April 2018. They could then give away a further £6,000 on 6 April.