The financial year end is approaching fast. If you haven’t already done so, these are some of the personal finance areas you should be checking: Year-end tax planning
Pension contributions The maximum pension contribution on which tax relief can be claimed in any one year is £40,000, but if funds are being withdrawn under a flexible drawdown arrangement, then the limit reduces to £10,000 and is set to reduce again to £4,000 with effect from 6 April 2017. This is intended to stop people recycling funds by claiming tax relief twice on the same contribution. In order to qualify for tax relief, the maximum personal contribution must not exceed 100% of pensionable earnings, though employer contributions would permit this limit to be exceeded. Carry forward Provided that the annual allowance for pension contributions has been used in full in any one year, it is permitted to carry forward any unused allowance from up to three previous years. The oldest unused relief must be carried forward first, and no allowance can be carried forward from years in which the scheme member was not a member of a registered pension scheme.
Pension lifetime allowance The maximum sum which can be saved in a pension scheme over the course of a lifetime without incurring tax charges is currently £1 million, having been reduced from £1.25 million on 6 April 2016. However, in the same way as with previous reductions in the lifetime allowance, it is possible within strictly defined limits to preserve larger sums by applying to HM Revenue & Customs for ‘protection’ before the tax year end on 5 April. ISA allowance The maximum amount which can be contributed to an ISA in 2016/17 is £15,240, but this will increase to £20,000 from 6 April 2017. Both spouses are entitled to their own allowance, but unlike the situation with pensions, an unused ISA allowance cannot be carried forward. So it’s a case of ‘use it or lose it’! Some providers now permit money to be withdrawn from an ISA and replaced in the same tax year without the payment being treated as a fresh contribution.
Capital Gains Tax It is worth checking to ensure that the £11,100 exemption from Capital Gains Tax is used each year by both members of a married couple to shield gains on investments which are not held within a tax- protected ‘wrapper’ such as an ISA. Child benefit The value of child benefit begins to reduce when recipients’ ‘adjusted net income’ exceeds £50,000 a year, and ceases to be available when it reaches £60,000. However, the value of adjusted net income will be reduced by the amount of any pension contribution, thus enabling child benefit to be reclaimed.
Personal allowance A similar principle applies to the personal tax allowance, currently £11,000 p.a. and expected to increase to £11,500 p.a. from 6 April 2017. When a taxpayer’s income exceeds £100,000 p.a., the personal allowance starts to be reduced, and it ceases to be available when income reaches £122,000. The effect is that income between these two levels is taxed at an effective rate of 60%. However, in the same way as with child benefit, the thresholds will be reduced by the amount of any pension contributions. Inheritance Tax Gifts can be made each tax year which will reduce the value of an estate for the purposes of Inheritance Tax. The annual exemption is £3,000, and if this is not fully used in one year the balance can be carried forward to the next. In addition, gifts up to £5,000 can be made by parents on the marriage of children, and £2,500 by grandparents. Furthermore, any number of gifts of £250 can be made without attracting tax. The most valuable exemption applies to outright gifts of unlimited value which are made to individuals (and not trusts) more than seven years before the death of the donor. Thereafter, these ‘potentially exempt transfers’ become wholly exempt from Inheritance Tax.
And finally If you’ve missed the 5 April deadline then get in touch with your financial adviser for guidance. Scrutton Bland’s financial advisers provide independent advice from across the whole market, and can guide you through the various options to find the best solution to fit your individual circumstances. Contact Gary Riches at 01206 838400 or gary.riches@ scruttonbland.co.uk or visit our website www.scruttonbland.co.uk
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