Tax year-end: Taxing times

5th February 2015

by Jan Thompson

Contact Jan on 07568 321207 or email jan.thompson@sjpp.co.uk www.jananthompsonwealthmanagment.co.uk

Jan Thompson Partner of St James’s Place Wealth Management, is based locally in Winchmore Hill and is inviting local residents to discover the simple yet highly effective steps you can take to preserve and protect your wealth. Preserving and protecting your wealth surgeries are being held locally by appointment on 25th & 26th February 2015 from 10-5pm. All surgeries last approx 40mins and are held in the strictest confidence and without obligation.

It pays to get your finances in order before the end of the tax year.

When the run-up to the end of the tax year coincides with the countdown to a general election, taxation and personal wealth are going to feature high up on the political agenda. Of course, no one knows the outcome of the May election until the ballot has closed and the votes are counted. And any changes to taxation rules will remain in the balance until a new government is formed.

But there are some crucial questions for voters over the coming months. Will there be cuts to higher rate tax relief on pension contributions? Will there be a reduction of the burden of Inheritance Tax? Will Income Tax rates change?

Certainly, Britain’s savers and investors can only plan on the basis of what they know – and can only speculate on which election promises become policy.

Yet savers and investors still have to make a series of decisions prior to the tax year-end; a full month before the general election. The best approach to help reduce tax bills and achieve financial goals is to make full use of the allowances, exemptions and planning measures already in place. And that means taking action before 5 April to ensure the opportunities that are available now are not lost.

So, as the tax year-end fast approaches, savers and investors should consider the following.

Take full advantage of your annual ISA allowance

July’s increase in the annual ISA allowance to £15,000 was a welcome, if overdue, development, and reaffirmed the value of ISAs for long-term planning and tax savings. Yet latest HMRC figures from September last year reveal that the average value of a Stocks & Shares ISA portfolio is just £29,520 and that the average contribution in the last tax year was £6,200. Clearly, there is room to maximise the opportunity to generate tax-efficient income and capital gains free of any further tax liability.

However, what hasn’t changed is that your allowance for this tax year will be lost unless you invest by 5 April.

Save tax with pension contributions

The recently announced changes to pensions introduce much greater flexibility and remove many of the reservations some people had about investing through pensions. The annual allowance that can be invested in a pension in this tax year is £40,000. Advantage can also be taken of any unused annual allowances from the 2011/12 tax year onwards.

The continuation of higher rate tax relief on pensions is one of the post-election uncertainties, so those paying tax at higher or additional rates should consider accelerating contributions while the higher tax reliefs remain in place.

Make gifts to reduce your Inheritance Tax liability

Gift exemptions may appear minor in isolation, but their consistent use over the years can produce significant savings and benefits. Each individual has an annual gift exemption of £3,000 and has until 5 April to take advantage of last year’s exemption if it wasn’t used. Between spouses there could be £12,000 available for immediate gifting, which can be divided into any number of individual gifts.

Advantage can also be taken of the normal expenditure from income exemption, which offers a lot of flexibility and is potentially the most generous exemption as it has no defined monetary limit. A number of broad conditions do apply, including that a regular pattern of gifts needs to be established, gifts must come from surplus income and gifts must not affect the donor’s standard of living.

It is also possible to make small gifts of up to £250 to as many people as you wish in any one tax year. The only caveat is that the same individual cannot receive both a small gift and any of the annual £3,000 exemption in the same tax year.

A good way to maximise these allowances might be through Junior ISAs, for which this year’s allowance is £4,000, giving children or grandchildren a head start. Alternatively, investing into a pension for someone else could boost your gift by 20% through the tax relief available on contributions.

Fully utilise your Capital Gains Tax allowance

Individuals can realise up to £11,000 of gains this tax year without having to pay Capital Gains Tax (CGT), which is worth £3,080 to a higher rate taxpayer. And a decision to crystallise gains up to this limit before the end of the tax year could reduce the amount of tax paid in the future. Married couples or civil partners should also not forget to make use of their spouse’s or partner’s CGT allowance.

Transfer assets between spouses

Don’t forget that transfers of assets between spouses are free from tax, which provides the opportunity to ensure that both optimise their available allowances and reliefs. It may be advantageous to transfer assets into joint ownership or to your spouse if they pay a lower rate of tax than you, which could save tax on future income and capital gains.

The level and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances. An investment with St. James’s Place will be directly linked to the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

To receive a complimentary guide covering wealth management, retirement planning or Inheritance Tax planning, produced by St. James’s Place Wealth Management, contact Jan Thompson of St. James’s Place Wealth Management on 07568 321207 or email jan.thompson@sjpp.co.uk