Steal a March on April

by Daniel Wood, 7IM

It’s a new year. It’s a new me. Or so I tell myself at the start of every year. As soon as Christmas is over and done with, I set out my new year’s resolutions. These, like most people, are fairly generic – take more exercise, visit a new country, spend more time with family and friends. Oh, and have more financial discipline.

Taking care of your finances can be as divisive as Marmite – most people hate financial admin and paperwork and only a handful absolutely relish it. But there’s no doubt that those all-important tasks usually become the things we put off and kick down the road.

However, one of things you should avoid putting off is the opportunity to take advantage of the many tax reliefs, allowances and exemptions that are available before the end of the tax year which falls on 5 April.

This is certainly not a comprehensive list of all the considerations you should be looking into. But if you’ve covered all these areas, you’ll certainly be well ahead of the curve. And hopefully somewhat better off, too.

Individual Savings Account (ISA) Any savings growth or investment return made within an ISA wrapper is free of both income tax and capital gains tax (CGT). Every adult has a £20,000 ISA allowance for the 2019/20 tax year, but any unused allowance unfortunately cannot be rolled over to the 2020/21 tax year. An ISA is an effective solution if you are looking for a taxefficient savings vehicle for the short, medium or longer term. ISAs can help to build a tax-free income in later life, or for gifting to those you want to benefit.

If you’ve used up your ISA allowance, you could consider funding your spouse’s ISA, or putting money into your children or grandchildren’s ISAs. The Junior ISA (JISA) can be used to save up to £4,368 during the 2019/20 tax year.

Investing via a stocks and shares variant of the ISA could provide an opportunity to benefit from growth that outpaces inflation and allows your savings to grow in real terms.

Pensions Pensions are a wonderfully tax-efficient means of saving for retirement, as tax relief is added to the money you pay in every year (up to a limit of £40,000 per year before tax). In addition, contributions to a pension benefit from income tax relief at an individual’s highest marginal rate. Under current legislation*, pensions also provide a means of inheritance tax (IHT) planning, as they can be handed onto your beneficiaries inheritance tax free. Any growth or investment return made within a pension is one that is free of both income tax and CGT. Current rules allow pensions to be accessed any time from age 55 with 25% of the value, up to an individual’s lifetime allowance, paid out tax free. There is also a ‘carry forward’ allowance with pensions that allows you to use any unused allowance from the three previous years. This allows you to pay in more than the annual allowance and still claim tax relief. To avoid triggering a tax charge, speak to your Financial Planner or Private Client Manager, as we can help with this.

Contributing to a pension personally, or on behalf of an individual, can lower an income tax bill, restore a lost personal allowance and even avoid a child benefit tax charge. It is possible at present to pay £3,600 (before tax) into a pension scheme for a non-earning spouse, civil partner or your children.

“Any growth or investment return made within a pension is one that is free of both income tax and CGT.”

IHT, is to gift money to others, such as children or grandchildren. Not only can this reduce an estate’s liability to IHT, but it can also assist beneficiaries financially. There are a number of annual exemptions and allowances available to individuals. The most common is the annual lump sum of £3,000, which can be given by one person to one individual or divided up among many. In addition, you can give £250 to as many people as you like.

Expert advice Planning ahead for your financial future can be complex. We would always recommend you seek professional advice when undertaking a review to ensure all aspects of your financial plan are considered.

* Please note, legislation, particularly pension legislation, is subject to change. Tax rules are subject to change and taxation will vary depending on individual circumstances.

Daniel Wood, APFS, is one of our Chartered Financial Planners.

Capital Gains Tax (CGT) This tax year, every individual has a CGT allowance of £12,000. This is the amount of growth or investment return that can be realised in a taxable portfolio, or by selling an asset that has appreciated, before tax is due.

End of tax year checklist:

Use your annual CGT exemption and any registered allowable losses.

Like the ISA allowance, this allowance cannot be carried into the new tax year. It may be worth gifting assets to a spouse to make use of their CGT allowance also.

Inheritance Tax (IHT) Even if your beneficiaries are still, hopefully, many years away from coming into their inheritance, it is still worth giving the subject of IHT careful thought.

There are IHT protections around couples and family homes, but as soon as thresholds are breached, IHT is a substantial 40%. The most straightforward way for an individual to reduce the size of their estate, and a potential liability to Use your full annual ISA allowance (and JISA allowance where appropriate).

Maximise your annual pension allowance (spouses and children’s pension allowance where appropriate) for this tax year.

Maximise any available pension carry forward allowance for the 2016/17, 2017/18 and 2018/19 tax years.