Spring 2015
End of year tax planning This year, there are good reasons to take action before the tax year ending 5th April 2015, as some opportunities will be lost after that date. Pensions The new pension freedoms should widen the appeal of pension schemes. From a tax perspective, they will remain the most tax efficient savings vehicle and should be at the centre of your tax planning. If you are intending to access the new income flexibility from 6th April you should take advice to ensure that you do not un-intentionally lose a large portion of your fund in tax. If you want to take advantage of the flexibility while maintaining pension contributions you may wish to consider boosting your fund before April. Accessing the new flexibility for the first time from 6th April 2015 will see your annual allowance fall from £40,000 to £10,000. Those already in drawdown will continue to have an annual allowance of £40,000 as long as their withdrawals remain within prescribed limits.
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 with tax relief at your highest rate. It may be possible to carry forward unused annual allowances to make pension contributions in excess of £40,000. Action - consider making a personal pension contribution It is also worth reviewing your savings and deposit accounts. You may be saving towards goals that you have for your retirement, or to leave money to your family after your death. Savings could instead be invested in a pension fund, benefiting from tax efficient growth, and qualifying for tax relief. The new pensions flexibility means that you can access your retirement fund without restriction (but subject to tax) and you can also pass your pension fund to your spouse or beneficiaries free of inheritance tax. Action - review your savings and investments
Income tax saving for couples Any personal allowance 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) but care must be taken to ensure that the transfer cannot be attacked by HMRC as a sham. Action - consider transferring assets to increase tax efficiency Child benefit claimants who are set to lose some or all of their entitlement for the year should consider taking action to reduce their adjusted net income. 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 pension contributions, gift aid and trading losses. Action - consider making a personal pension contribution before 6th April
Capital gains tax As with income tax, each person has an annual exempt amount, which is wasted if not used.
This currently stands at £11,900 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. Action - 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. Action - consider reviewing your will and making gifts or pension contributions for a child or grandchild
Savings and investments The deadline for using all of your tax efficient saving and investment allowances is 5th April 2015. If you are 18 or over you can invest £15,000 into New ISAs, or NISAs. The full amount can be invested in a stocks and shares or cash ISA, or a combination, subject only to the overall limit of £15,000. You are only allowed one of each type of ISA in one tax year, and transfers are now permitted in either direction. Enterprise Investment Schemes (EIS) and Venture Capital Trusts (VCTs) provide valuable tax benefits. However, the underlying investments are usually considered to be high risk. EIS schemes provide 30 per cent tax relief in 2014/15 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. Action - consider making tax efficient investments 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 ifa@thomas-carroll.co.uk
Why Thomas Carroll? 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. 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. We have recently been awarded Corporate Financial Planning Firm of the Year2 and Retirement Planning Firm of the Year3 by Bankhall Group, the UK’s largest distributor of financial services. Authorised and regulated by the Financial Conduct Authority. The Financial Conduct Authority does not regulate taxation and trust advice, deposits, advice on debt or State benefits. 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 2009 2. Awarded by Bankhall Group in 2012 &2014 3. Awarded by Bankhall Group in 2010 &2011