7th March 2016
With the end of the tax year fast approaching, and Easter intervening, higher earners and sophisticated investors may want to consider getting their tax and investment affairs in order sooner rather than later.
Ben Yearsley, investment director at Wealth Club said: “With the end of the tax year in less than a month, there isn’t much time to organise your financial affairs. Every year many investors and high earners lose out on valuable tax efficient allowances by leaving things too late.”
Yearsley highlights 10 handy hints that should act as a reminder about what is on offer. There are even ways to claim tax back from prior tax years…
1. Charitable donations
Charitable donations, as well as doing good, also attract tax relief via Gift Aid. If you are considering being generous, consider which tax year you do it in and remember to tick the Gift Aid box.
2. Use capital gains tax allowance
This is one of the most underused tax allowances, but up to £11,100 is available to all, tax free every tax year. Be clever with this allowance. If it gets near the end of the tax year, and the allowance hasn’t been used, then why not look at your portfolio and see if there are alternatives to those pregnant with gains. Many use this allowance to generate a tax free income.
3. Use your ISA allowance
Still one of the best allowances. £15,240 is a generous allowance that can give tax free growth and income free from any further tax. On a typical dividend yield of 3.5%, £533 of income could be generated each tax year.
4. Contribute to pension where possible
Even though the chancellor is doing his best to kill off pensions, using your allowance is usually a good thing. Upfront tax relief, tax free growth and inheritance tax free status are three benefits – the downside is taxable income when the pension is taken and having your capital tied up until at least the age of 55. Non-earners also have an allowance of £2880 each tax year. As the pension rules are changing from April, using the Carry Forward rules shouldn’t be forgotten.
5. Make use of spouse’s allowances
Many high earners have non-earning spouses. If that is the case, organise your affairs tax efficiently so that their valuable tax free allowances aren’t lost. The personal allowance of £10,600, and the capital gains tax allowance of £11,100 could be utilised by transferring assets to their name.
6. Do JISA and pension contributions for children and grandchildren
Children also get their own long term investment allowances. Make use of the Junior ISA allowance of £4080 and the pension allowance of £2880 before 5 April.
7. Pay dividends before 5 April
With the dividend tax rate increasing from 6 April 2016, owners of private companies should pay themselves as much dividend as possible before then to avoid the new tax. Under the new rules, everyone gets a £5,000 tax free allowance before new taxes apply. Some FTSE 100 companies have brought dividends forward.
8. Consider ways to reduce income tax bill by investing in VCTs, EIS, SEIS
For high earners who have already utilised their ISA and pension allowances, more specialised investments are available that can help reduce income tax bills, capital gains tax bills, produce tax free growth and tax free income. A total of £1.3 million could be invested in these three investments this tax year offering a tax rebate of £410,000 (for those lucky enough to earn enough!).
9. Look at EIS or SEIS to reclaim income tax or CGT previously paid for the 2014/15 tax year
There aren’t many ways to reclaim tax paid in previous tax years. Enterprise Investment Schemes (EIS) and Seed EIS are two such ways; previously paid income tax or capital gains tax can be reclaimed, provided this is done within specified time limits.
10. Use your annual gift allowances to reduce the value of your estate
Every individual can legitimately reduce the value of their estate each year by gifting assets within specified limits. For those with larger estates this could be particularly useful.