The current financial year ends on 5 April 2012. There are a number of important personal allowances and tax reliefs which will either reduce in value or disappear altogether on 6th April 2012. We’ve produced a simple checklist which focuses on the main planning opportunities you should consider hopefully well before midnight on the 5th April.
[caption id="attachment_1760" align="alignleft" width="492" caption="The current financial year ends on 5 April 2012"][/caption]
Pensions – allowances and important changes
If you are a higher rate tax payer in the 2011/2012 tax year (£35,001 and over), a payment to a pension scheme may qualify for 40% income tax relief. This means that a payment of £1,000 will actually cost £600. The higher rate tax band will be from £34,371 to £150,000 in the next tax year in 2012/2013.
Individuals with earnings below the £35,001 figure will still receive basic rate relief on their payments at 20%. So a payment of £1,000 actually costs £800.
If you have taxable earnings of over £100,000 in the current tax year, it is especially important that you consider advice as it is possible to restore the Personal Allowance, which is gradually taken away as soon as earnings go over the £100,000 limit. If your taxable income is above this threshold, the personal allowance (£7,475 in 2011/2012) reduces by £1 of every £2 of earnings.
In the current tax year, individuals earning in excess of £150,000 can actually receive tax relief at 50%.
There are special ‘carry-forward’ rules which now apply to pension contributions, allowing higher earners to make contributions in excess of the £50,000 annual allowance.
Important: Pensions are still a complex planning area and the rules have changed a great deal over the past two years – with new contributions limits (£50,000 per annum) and a new cap on total pension savings of £1.5m. If you have a large pension ‘pot’ or are concerned about your overall retirement planning, please book a review with your adviser. We can save you money! For example, one planning option that is often missed is where a person funds pension payment for a lower earning spouse or child – everyone now has an annual allowance for pension payments of £3,600 irrespective of their level of earnings.
Using your ISA allowance
All UK resident individuals over the age of 18 have an annual allowance of £10,680 in the current tax year (2011/2012) for tax free savings. This will go up to £11,280 for 2012/2013. Alternatively, you can invest up to £5,640 into a cash ISA, with the remainder up to the total allowance of £11,280 available to invest in a stocks and shares ISA.
This allowance permits investors to shelter a part of their savings from income and capital gains tax. We recommend you speak to your adviser well before the end of March in order to ascertain exactly how much allowance you have left, and then make best use of it.
Planning tip – many financial planners now emphasise the value of ISAs as a complement to pension savings. This is because ISAs offer tax efficient growth and the potential for tax efficient income in retirement.
Inheritance tax allowances
If your estate (all your assets) exceeds £325,000 then you should be considering ways of reducing your inheritance tax liability. There is an annual allowance for gifts of £3,000 that allows for a small sum to be transferred from your estate with immediate effect. For a married couple this is £6,000 every year.
You should also consider: establishing a pattern of regular gifts which may be treated as exempt, making settlements into trusts or taking out insurance against possible liability.
Capital gains tax allowance
If you have assets which have appreciated in value over the past few years, it is worth checking to make sure your annual allowance for capital gains (currently £10,600) is being utilised.
Gifts to charity
Provided that you pay sufficient income tax at the basic rate (20%), you should be able to obtain income tax relief at your marginal rate for cash donation made under gift aid.
Consider other tax-efficient investments
Discuss with your financial adviser whether you should, as part of your overall investment strategy, make an investment into an Enterprise Investment Scheme (EIS) qualifying company or a Venture Capital Trust (VCT).
Income tax relief is given at 30% on EIS investments. So an individual with a £10,000 tax liability who makes an EIS investment of £20,000 will reduce their tax bill by £6,000.
VCTs offer greater diversification than EIS arrangements and the relief is also at 30%, with an additional exemption on income paid out from the trust.
Schedule a call with your adviser
Above all else, tax planning is relatively complex so we recommend scheduling a call with a Barchester Green Investment adviser well before financial year end. We may be able to save you a considerable amount of money! Book a call in with an adviser today on 0800 328 6818.