31st March 2016
Hargreaves Lansdown has suggested ten last minute end of tax year saving tips
Danny Cox, Chartered Financial Planner, Hargreaves Lansdown says: “It’s the simplest of equations – less tax to the government means more money for you. There are plenty of ways to make sure your financial affairs are arranged to save large amounts of tax, which won’t cause so much as a raised eyebrow from the taxman. The longer you use tax-efficient wrappers such as ISAs or SIPPs, the greater the potential for tax savings.”
10 last minute end of tax year saving tips
1 Use your ISA allowance
Use your ISA allowance and shelter your savings from tax. There is no capital gains tax or further income tax on assets held in an ISA, making them one of the most tax-efficient ways to save. You can invest up to £15,240 into an ISA this tax year, in any combination of cash and stocks and shares, £30,480 per couple.
2 Use your pensions allowance
Investing in a pension for retirement is one of the most tax efficient ways to save, and higher rate tax relief is still available.
If you’re a UK resident and under age 75 the general rule is you can contribute as much as you earn to pensions this tax year, effectively capped at £40,000. Higher earners with incomes over £150,000 could see a lower, tapered annual allowance from 6th April but can still benefit from the full £40,000 for the next 6 days
3 Carry forward is back
If you have unused annual pension allowance from the past three tax years, you may be able to use it this year, increasing your £40,000 allowance. Your total allowance this year could be up to £170,000.
Your total contribution must be within 100% of your earnings to receive full tax relief. With tax relief of up to 45%, £170,000 in a pension could cost a high earner as little as £93,500.
4 Pension for your spouse
Investing in pension for a non-earning spouse is one of the most generous of government pension give-aways. Non-earners can make a £2,880 pension contribution and the government add £720, even if the individual pays no tax.
At retirement from age 55, 25% of the value of the pension fund can normally be taken as tax-free cash, with the balance being taxable. However if further withdrawals fall within the individual’s personal allowance each year, these will also be tax-free.
5 Use your capital gains tax allowance
Every year you can realise a certain level of gains without paying capital gains tax (CGT). This tax year (2015/16) the allowance is £11,100. Using your CGT allowance saves up to 28% capital gains tax.
Making the most of your capital gains tax allowance could a save a couple up to £6,216 in CGT.
6 Register losses and use them to offset gains
Once registered, losses can be used to offset gains at any time in the future, effectively increasing your capital gains tax allowance.
7 Capital Gains Tax is “better” than income tax
The top rate of income tax is 45% whereas the top rate of capital gains tax is 28% (falling to 20%) and you can make profits of £11,100 a year (2015/16) before you start to pay CGT. It can therefore make sense for some taxpayers to arrange your portfolio so your income-producing assets are held in a SIPP or ISA, with your growth assets outside.
8 Save Inheritance tax – get gifting
One of the best ways to save IHT is to make use of your IHT exempt gift allowances. Everyone can give away up to £3,000 a year (and up to £3,000 in respect of the previous year if this allowance was not used), meaning a couple could give away up to £12,000 now and a further £6,000 on 6th April, potentially saving £7,200 of IHT.
9 Invest in Venture Capital Trusts (VCTs) for 30% income tax relief
Taxpaying, sophisticated investors who are happy taking higher risks in return for the potential for higher rewards could consider VCTs. These invest in some of the most dynamic, entrepreneurial, high growth companies and are long term speculative investments which give you the chance to get in on the ground floor of fledgling investment opportunities. For those who pay sufficient tax, a £10,000 investment in VCT could cost as little as £7,000 after tax relief.
10 I don’t want to invest now, but how do I make sure I use my ISA/SIPP allowance?
You can invest now into your ISA and SIP, hold the money in a cash park, and then make your investment decisions later.