Some tax year tips!
As 5 April approaches, along with the cut off for any potential tax savings to be gained this financial year, now is the time to take a quick look at your finances and make sure you are as tax efficient as possible.
After all, you really don’t want to wake up in a bad mood on the 6th realising you’ve missed some golden opportunities to save money!
So my top five tips are as follows:
1. Make the most of your capital gains tax allowance
Your Capital Gains Tax (CGT) allowance is a simple way to reduce any tax liable on the sale of certain assets, especially at this time of year as we approach the end of tax year.
Everyone has an annual £11,300 CGT allowance. Which means that you can sell assets that are liable to CGT without having to pay any tax on the first £11,300 of gains. There are certain assets that are exempt of any CGT liability (such as your main home, car and ISAS.)
Now is the perfect time of year to consider the way in which you dispose of your assets. As you cannot carry your CGT exemption over to the next year, you can stagger the way in which any tax becomes liable. For example, if you are planning to sell shares and are likely to make £20,000 from the proceeds, then you can take advantage of this time of year and sell them in two batches, either side of the 5 April Tax year end.
Married couples and civil partners should consider asset transfers between each other, in order to minimise their tax liability on future capital gains. As the CGT allowance is an individual one, married couples and civil partners are able to cover up to £22,000 of gains between them once they have shared ownership of joint assets. Just make sure that any transfers are genuine, outright and unconditional with no strings attached.
2. Use your seasonal bonus wisely
Any year-end bonus payment you may receive is an ideal way to top up your pension in order to make sure you are taking full advantage of your allowance. Especially as any allowance not used in a particular tax year is lost forever.
If you are able to make a pension contribution using your bonus sacrifice, then the boost your pension would receive could be worth almost double the net amount you would receive if you took the bonus as cash.
3. Keep your child benefit
Introduced in 2013, many families have been hit by the “high income child benefit charge”. The claw back is at the rate of 1% of the amount of child benefit for every £100 of income over £50,000. Which means that when your adjusted net income hits £60,000, you effectively lose all of the benefit.
Anyone approaching, or earning above £50,000 will start to see a reduction in the child benefit allowance if their bonus takes them over the £50,000 threshold.
So putting any end of year bonuses into your pension could also help avoid crossing that threshold and seeing your child benefit reduced.
4. Gift your way out of an Inheritance Tax Bill
It’s likely that, upon your death, your estate will be subject to Inheritance Tax (IHT). Currently charged at 40% on anything over £325,000.
You can however use your annual exemption to make £3,000 worth of gifts every year, without being liable to IHT.
You can also carry over any leftover annual exemption from one tax year to the next, but the maximum figure is £6,000 per year. You can choose to gift smaller items too, including £250 each to as many individuals as you wish. Wedding and Civil Partnership gifts are also tax exempt up to £5,000 to a child, £2,500 to a grandchild or great grandchild and up to £1,000 for anyone else.
5. Your ISA allowance is there – so use it
There are just a few weeks left to use this year’s ISA allowance, as the amount you are allowed to invest in ISA’s resets on 5 April, with no possible way of you carrying over that tax break into the next financial year. In short – if you don’t use it, you lose it!
So any UK resident aged 18 or over, can invest £15,000 this tax year. You can split this between one Stocks and Shares ISA and one Cash ISA, or you can just invest in one type.
If you are aged 16 and 17 you also have a £15,000 ISA allowance (to be used in a Cash ISA only). And let’s not forget that parents can also put up to £4,000 into a Junior ISA for each of their children under the age of 18. Either way that’s a big tax saving sitting there waiting to be taken advantage of.
As always, if you need some more information, or want to discuss your personal circumstances, please contact us at Bridgewater Financial Services and we’d be delighted to help save you money!