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End of year tax planning This briefing covers actions you may wish to consider taking in the tax year ending 5th April 2014, so you should start thinking about taking any action now.
Income tax saving for couples Any personal allowance (£9,440 for 2013/14) that is not used at the end of a tax year cannot be carried forward. However, couples can make use of each other’s unused allowances through methods such as transferring ownership of income generating assets (like savings and investments). Couples can also jointly own income generating assets, where the income will automatically be split equally, unless otherwise specified, but the income paid must correspond to the proportion owned. This is only possible if you are married or civil partners.
Consider transferring assets to increase tax efficiency
Care needs to be taken for any couples where one person’s adjusted net income exceeds £50,000 per annum. There will now be restrictions to child benefit claims and a total withdrawal of the benefit for a person with income exceeding £60,000 per annum. Adjusted net income is, broadly, taxable income (it should be noted that this includes all rental income, FULL amount of bond gains and any other taxable income). Certain deductions are allowed, such as the gross value of personal (relief at source) pension contributions, gift aid and trading losses.
Consider making a personal pension contribution in the tax year in which the child benefit tax charge will apply
Capital gains tax As with income tax, each person has an annual exempt amount, which is wasted if not used. This currently stands at £10,900 for individuals and personal representatives. Any gains in excess of this limit are then taxed at 18 per cent up to the limit of the basic rate income tax band, and 28 per cent on gains above that limit. Couples should make sure that both limits are used by jointly owning, or transferring assets prior to a gain being made.
Consider encashing investments to utilise the CGT exemption and re-investing in a tax efficient environment
Inheritance tax Every year you have an annual exemption for gifts of up to £3,000, which if not used, may be useable in the next. This is the total of gifts in any tax year that are ignored in the event of the donor’s death within seven years. It is important that you have an up to date will in place, which takes into account the most up to date inheritance tax rules. For example, you are currently able to leave £325,000 worth of legacies without paying IHT, the equivalent of £650,000 for married couples, but this allowance may well change.
Consider reviewing your will and making gifts
Savings and investments The deadline for using all of your tax efficient saving and investment allowances is 5 April 2014. If you are 18 or over you can invest £11,520 into ISAs. The full amount can be invested in a stocks and shares ISA or £5,760 can be invested in a cash ISA with the balance in a stocks and shares ISA. You are only allowed one of each type of ISA in one tax year, and while transfers from cash ISAs into stocks and shares ISAs are allowed, you cannot transfer stocks and shares ISAs into cash ISAs.
Enterprise Investment Schemes (EIS) and Venture Capital Trusts (VCTs) provide valuable tax benefits. EIS schemes provide 30 per cent tax relief in 2013/14 on investments of up to £1,000,000. Investments can be carried back by up to one year provided the limit in the previous year was not reached. VCT investments offer tax relief of 30 per cent of the amount invested, with a limit of £200,000 in any tax year.
Consider making tax efficient investments
Pensions UK resident individuals are entitled to put £3,600 into a pensions plan each year even if they have no earnings and pay no tax. Tax relief reduces the contribution to £2,880. If you earn more than £3,600 you can pay more into a pension and get tax relief at your highest rate. If you are a basic rate tax payer you make contributions to the pension net of basic rate tax. If you are a higher rate tax payer you can claim the additional 20% tax relief. For the year ending 5th April 2014 you can get tax relief on contributions up to £50,000. If you are a member of a pension and have unused relief carried forward you can potentially get tax relief on contributions up to £200,000 provided you have sufficient income.
Consider making a personal pension contribution
Lifetime Allowance Charge
Why Thomas Carroll?
Anyone who has pension benefits with a value in excess of the Lifetime Allowance will be subject to a tax charge on their excess pension benefits at retirement. This is known as the lifetime allowance charge.
We have the honour of being named ‘The Chartered Financial Planners of the Year1 by the Personal Finance Society – the body which grants Chartered status to IFA firms and individuals.
With the Lifetime Allowance reducing to £1.25 million on 6 April 2014, there is a new form of protection available. This is called fixed protection 2014 and will allow an individual to retain a lifetime allowance of £1.5 million. Applications for fixed protection 2014 must be received by HMRC by 5th April 2014
Our title demonstrates the excellence, commitment to professionalism, training and development of our people which our clients and professional colleagues have come to expect from us.
If you have substantial pension savings consider applying for fixed protection 2014
We have recently been awarded Firm of the Year2 , Adviser of the Year2 and Retirement Planning Firm of the Year3 by Bankhall Group, the UK’s largest distributor of financial services.
Contact us If you wish to discuss the content of this brief in more detail please contact Louise Eedy directly on 02920 855 244 or e-mail louise.eedy@thomas-carroll.co.uk Tax and legislation are liable to change. This information is based on our current understanding of UK law and HM Revenue & Customs practise and legislation we believe may apply in the future. No guarantees are given regarding the effectiveness of any arrangements entered into on the basis of these comments.
1 Awarded by the PFS in 2010 2 Awarded by Bankhall Group in 2014 3.Awarded by Bankhall Group in 2010 and 2011