Let’s face it, tax is not an exciting subject, but spending a bit of time reviewing year end tax planning strategies could have a dramatic affect on your personal finances.

The financial year for tax purposes runs from 6th April to 5th April the following year and the goal of this article is simple:

“To share strategies you may be able implement so you keep more of your money.”

Topics covered:

  1. Personal Tax Relief
  2. Pensions
  3. Individual Savings Accounts
  4. Capital Gains Tax (CGT)
  5. Inheritance Tax
  6. Trust Funds

1) Personal Tax Relief

Full utlilisation of your personal reliefs can be one of the simplest, yet often missed tax planning strategies.

As well as your own starting and basic rate tax bands, if you are married, talk to your financial adviser or accountant about using each person’s personal reliefs and the benefits of distributing income-producing assets evenly between you.

2) Pensions

There are number of different pension tax planning strategies to consider:

  • Pensions Annual Allowance
    Make sure you have fully utlised your tax-efficient contributions for this current tax year AND any unused allowances from the previous 3 tax years

  • Stakeholder Pensions
    Available to UK residents under the age of 75, INCLUDING children. These payments can be used to help keep below the £50,000 income threshold to retain child benefit, whilst also helping your children or grandchilden have a more secure financial future.

  • Pension Drawdown
    Applicable to those over 55. For more information please refer to these separate articles (click on title to open):

    Should You Be Cashing In Pensions At 55?
    Pension Freedoms – Rules and Options

3) Individual Savings Accounts (ISAs)

An Individual Savings Account (or ISA) is a tax-efficient way to save, because your money is shielded from:

  • Income Tax
  • Tax on dividends
  • Capital Gains Tax.

There are different types to choose from, with age based eligibility rules and a current maximum annual combined contribution (unless specified otherwise) of £20,000.

Note, you cannot back date ISA contributions, so use your allowance or lose it!

Tax Planning - ISAs

Types of ISAs:

  • Cash ISA (Variable or Fixed Rate) – age 16 & over

  • Stocks & Shares ISA – age 18 & over

  • Lifetme ISA – between age 18 -39 (to set up), current annual allowance £4,000 a year, up to age 50. The Government will add a 25% bonus to your savings, up to a maximum of £1,000 per year.

  • Innovative Finance ISA – age 18 & over. (Higher Risk – not covered by Financial Services Compensation Scheme)

  • Junior ISA (Cash or Shares)– for children up to the age of 18, current maximum annual allowance £9,000. Set up by parent or guardian and only accessible by the child once they turn 18.

4) Capital Gains Tax (CGT)

Captial Gains Tax is generally applicable if you sell, give away, exchange or otherwise dispose of any assets, including a property and as a result make a profit.

There are exemptions, for example, your main residence (property), private cars, personal belongings etc, subject to qualifying criteria.

From a tax planning perpective it is worth noting that:

  • The tax is paid just on the profit, not the overall sale proceeds.
  • Both personal allowances can be used for jointly owned assets
  • Assets can be transfered between you if you are married or in a registered civil partnership without CGT being charged

5) Inheritance Tax (IHT)

When in comes to Inheritance Tax and tax planning strategies there are a few things to note:

  • Certain business assets, including shares and farmland, in private trading companies can qualify for 100% relief from IHT
  • Where a main residence is passed to a direct decedant there is an additional allowance available called Residence nil-rate band (RNRB)
  • IHT allowances are transferable between spouses and civil partners on death

For further information on inheritance tax and Residence nil-rate band, please refer to the followign articles (click on the title to open):

How To Avoid Inheritance Tax And Leave A Legacy For Your Family
Residence Nil Rate Band – What is it?

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6) Trust Funds

There can be a number of benefits to setting up a trust fund:

  • Help avoid Inheritance Tax

  • Protection of assests

  • Future financial stability for your loved ones

  • An efficient way to pass on money, shares and equity.

For further information on some of the different types of trusts available, take a look at the following article (click title to open) Types of Trusts – How To Give Away Your Wealth And Keep Some Control

In Summary

When it comes to year end tax planning strategies, there are many areas to explore. If you would like to book a free 30 minute initial chat, please click the button below, or contact Tony Thomas on 07585 592494 or tony@wealthmasters.co.uk

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