Year end is around the corner – looking ahead

With the financial year end looming, Booth Ainsworth report a number of opportunities following the onset of new rules for businesses and individuals to consider.

Pension planning – Does the annual allowance affect you?

If you earn over £110k per annum then it could!

As is stands, the annual allowance (maximum contribution) is £40k. However, after 5/4/16 this could be tapered down to as little as £10k depending on the level of your overall income from all sources including in some cases the pensions contribution itself!

Consequently, there may be a final opportunity for some to maximise the relief possible via a contribution in the current year.

The ability to carry forward unused annual allowance from the previous three years should also be considered for both personal and also company contributions.

Pension planning – Does the lifetime allowance affect you?

The lifetime allowance is the value of the pension fund you are permitted to accumulate.

This currently stands at £1.25m but will decrease to £1m after 5/4/16.

If you are close to these limits, there is action you can take to protect your allowance at the higher level.

Income planning – will the new dividend tax regime affect you?

The notional 10% credit on dividends is to be replaced by a £5k tax free dividend allowance after 5th April 2016.

if you receive dividend income from investments or if you take dividends over salary from your business, there may be a need to review your situation in order to ensure it is most efficient under the new regime.

Property investors/landlords – will the new tax rules affect you?

After 6th April 2016, with an increase in stamp duty of 3% and the introduction of only basic rate tax relief on mortgage payments, property investors may benefit from advice in regard to their existing and future plans.

Inheritance Tax – can I limit my exposure?

The new residence nil rate band isn’t due to take effect for another year yet however, there are steps you can consider in order to maximise the benefit when is comes in after 6th April 2016.

This will eventually provide a potential additional allowance up to £175k per individual in addition to their ordinary allowance of £325K.

Joint tenants need to review their wills to ensure they maximise this allowance. Leaving their share of a property to a spouse, could trigger a £2m estate value, where the residence allowance is reduced!

Where a discretionary trust is a beneficiary can also create a problem.

Inheritance tax – can I limit my exposure (part 2)?

With introduction of flexible access to pension funds, came a less publicised improvement to the treatment of residual pension funds on death.

Funds remaining in a pension fund on death are outside of the deceased’s estate.

Consequently, for those who drawdown on their pension funds, consideration should be given to reducing this and drawing  income from assets which form part of the taxable estate.

Inheritance tax – can I limit my exposure (part 3)?

Isa’s are a great way to accumulate capital tax efficiently. However, as Isa’s form part of an individual’s estate, much of this benefit can be eroded by a potential Inheritance tax liability.

There are investments possible which Isa’s can be moved into without any tax charge, which offer much of the same investment potential as an Isa but potentially fall outside of the estate for Inheritance Tax.

Income tax – can I limit exposure

Isa’s do remain a very efficient savings option. The current annual allowance of £15,240 will remain for 2016 however, this is not an allowance that can be carried forward. Consequently, it makes sense to take advantage of this allowance if possible and avoid having to declare interest/income and possible capital gains on investments unnecessarily.

The ability to move between cash ISA’s and stocks & shares ISA’s has improved the options for adding or removing market exposure and an individual’s ISA account can now be passed on death to a surviving spouse as an additional permitted subscription.

Income tax – can I limit exposure (part 2)

Personal pension contributions qualify for your highest rate of income tax – for now!

Proposals for a flat rate of relief are being considered and consequently, higher rate income tax payers should seriously think about attending to any planned contributions ahead of the budget on 16th March!!

Are you paying too much tax?

Consider all your allowances and how your assets are held. Every individual has a Capital Gains Tax Fee Allowance  of £11,100 which is available every year. Check if your investments offer the opportunity to take advantage of this.

For married couples, check if assets can be assigned to make the most of all personal income tax and captial gains tax free allowances.

For potential inheritance tax savings, consider all annual gift exemptions and possibly even regular gifts from surplus income.