14 Oct 2014
Grant Morrice, Independent Financial Advisor, summarises ways to minimise your tax bill in the run up to October 31st paper submission deadline
If you are married or in a registered civil partnership, and your spouse pays less tax than you, consider moving income yielding savings and investments into their name and make full use of their personal allowances and basic rate tax bands, where applicable.
Those aged over 65 may still enjoy larger, age related, personal allowances. At 65 the personal allowance, the amount of taxable income you're allowed to receive each year tax-free, rises to £10,500. However, once your taxable income exceeds £27,000, for every extra £2 income you lose £1 of the age related allowance.
There is no capital gains tax and no further income tax to pay within an ISA. Therefore we believe the majority of investors should use their full allowance each year. You can invest up to £15,000 in either a cash or stocks and shares ISA this year
Making full use of your pension allowance is one of the most tax efficient ways to save for retirement and the new rules on how to take your pension mean these investments are highly attractive.
Tax relief on contributions is available at the basic rate (20%) for all investors and at the highest marginal rate paid by higher and additional rate taxpayers depending on their circumstances. Furthermore, the ability to carry forward the unused annual allowance from the last three years potentially enables a turbo boost or substantial catch up of contributions.
Taxable income of more than £100,000 will reduce your personal allowance. For every £2 of taxable income over £100,000, you lose £1 of your personal allowance.
Example, if your income is £106,000 the loss of personal allowance will cost you an extra £1,200 in tax. This is because you lose £3,000 of your personal allowance. To solve this problem, make a pension contribution of £6,000 gross. Not only will this save you this £1,200 in tax but you would also be able to claim tax relief on your pension contribution giving you a total tax saving of £3,600.
The IHT threshold has been fixed at £325,000 for a number of years. More estates are likely to be dragged into the inheritance tax net as property and asset values rise. This, combined with the reduction in the rate of IHT paid for those who leave 10% of their estates to charity (deaths after 5 April 2012), means now is a good time to review your inheritance tax plans.
This is for your general information and use only and is not intended to address your particular requirements. It should not be relied upon in its entirety and shall not be deemed to be, or constitute, advice. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.