Tax breaks to think about before the tax year-end

ISAs

• The ISA allowance is currently £20,000, and this is a good way to protect funds from any further liability to Income Tax or Capital Gains Tax.
• Over £270 billion is currently deposited in Cash ISAs, with mixed views on their profitability; it’s worth reviewing any that you hold now.
• It’s possible to contribute into Junior ISAs of up to £4,260 for each child. You can also contribute up to £2,880 into a child’s pension, which will be topped up to £3,600 with tax relief.

Pension plans

• Do you have a pension? A pension contribution helps higher earners bring down their taxable incomes and regain their personal allowance, which begins to be withdrawn for incomes over £100,000.
• It can also help families avoid losing Child Benefit, which is removed if one parent or partner in the household earns more than £50,000.
• For most working people, the annual allowance is £40,000 (or 100% of earnings if less). If you’re in a position to use some or all of it, and are not in danger of breaching the £1.03 million lifetime allowance for pension savings, now is a good time to think about making additional contributions.
• You’ll receive tax relief on additional contributions at the basic rate.
• Eligible higher rate tax payers and additional rate taxpayers can reclaim an additional 20% or 25% tax relief via their annual tax return.
• You’ll automatically receive basic rate Income Tax relief, worth 20%, on your pension contributions. Higher and additional rate taxpayers are entitled to an extra 20% and 25% respectively, which can be claimed via your annual tax return, if this applies to you.
• You may be able to carry forward any unclaimed allowances from the three previous tax years – particularly valuable for people with incomes over £150,000, as they are affected by the tapered annual allowance introduced in April 2016. (Ask us if you’d like to know more about this.)

Other tax breaks

• You have a Capital Gains Tax exemption of £11,700 in this tax year, so you should realise any gains up to that limit before 5 April.
• If you’re married and your partner is not using their full Capital Gains Tax allowance, you can transfer assets across to realise shared gains of up to £23,400.
• The Dividend Allowance lets you receive tax-free dividends of £2,000 in this tax year.
• Inheritance Tax is a worry for most families; it’s widely viewed as an unfair tax, but often ignorance is to blame for wealth ending up in HMRC’s hands rather than staying in the family. Take this opportunity to review your estate and set down plans for the future now.
• You can gifts up to £3,000 each tax year that will immediately be free of inheritance tax, and you can carry forward any unused gifting allowance from the previous tax year. Making contributions on behalf of younger family members to a Junior ISA or to a pension is one example of this gifting opportunity. You can also make numerous small gifts worth up to £250 each without paying inheritance tax.
• Charitable donations provide an opportunity to reclaim tax allowances.

If you would like to chat to an independent financial advisor about any of the issues raised in this article, we’ll be happy to introduce you to someone within our trusted network of business colleagues. In the first instance, call Jordan Cohen on 020 8530 0720, or email jordan.c@nordens.co.uk and we’ll arrange it.

We’ve based the information in this article on a feature written by an IFA at St James’s Place Wealth Management. You can read the full article here.