Regardless of what Moira Stewart says, tax isn’t the easiest of things to get your head around. It can be quite challenging to understand how to make the most of your various allowances, and ensure you’re following the rules.
But don’t worry; below we have some end of tax year top tips for you:
Put it in an ISA
Never forget your ISA allowances each year. These cannot be carried forward if left unused at the end of the tax year. For the current tax year (2013/14) due to end on the 5 April you can put a total of £11,520 into an ISA, this can be split between Cash ISA’s (maximum allowance up to £5,760, 50% of the annual allowance) and Stocks and Shares ISA’s (up to £11,520).
The allowance for the 2014/15 tax year, available from 6 April 2014, is increased to £11,880 and is set to increase each tax year in line with the annual rate of the Consumer Prices Index (CPI).
The big attraction to holdings in a Stocks and Shares ISA is that any profits from investments are free of Capital Gains Tax. Also, any payment of dividends held in a Stocks and Shares ISA will only be taxed at the Basic Rate of 10%, which can also be of use to Higher Rate and Additional Rate taxpayers who favour income producing assets.
For those that hold stocks and other assets that attract Capital Gains Tax outside of an ISA, the annual capital gains exemption is £10,900 (for the 2013/14 tax year).
Pension Lifetime Allowance
The maximum amount that you can put into your pension tax free throughout your life is going down, from £1.5 million to £1.25 million. You may be eligible for Lifetime Allowance Protection, which will limit or prevent the effects of the reduction.
An Independent Financial Adviser can help you apply for the relevant protection.
Pension Annual Allowance
Following the lifetime allowance, the annual allowance is set to reduce from £50,000 to £40,000. To make the best use of the allowance before it changes, you have three options. You can:
- Put the maximum amount into a plan in which the period ends this tax year
- Start a new plan before the new tax year, and pay into it before the new tax year
- Use carry forward allowances if have these are available, a financial adviser will be able to assist you with finding out if you have a carry forward allowance
Claiming Higher Rate Tax Relief
You get income tax relief on your pension contributions. However, it is only automatically paid at the basic rate. This means that if you’re a higher rate taxpayer, you need to claim it back manually and one of the ways to do this is complete a self-assessment.
On the self-assessment, you need to state your gross pension contribution. This is the combined amount of how much you have put in and the basic rate tax relief, but not your employers contribution.
Your annual pension statement will provide you with the figures for this.
On 7th January 2013, new laws came into force relating to Child Benefits. Under the new rules, if one parent’s net income is more than £50,000, their child benefit will be reduced by 1% for every £100 over this amount.
This reduction will be made through a tax charge.
If their net income is more than £60,000 the full amount of their child benefit will be charged at 100% tax. If both parents have over £50,000 the parent with the higher income is the one the calculation is based on.
To make yourself more tax efficient in light of the new law, you could:
- Put more into your pension, which would reduce your net income
- Donate money to charity using gift aid to reduce your net income
- Opt out of child benefit altogether and therefore the tax charged on it
- Pay the lowest earner’s contribution to the highest earner’s pension
- Arrange it so that the lowest earning partner holds savings, so that they pay the tax on income from the savings
These are just some of the opportunities to make the most of the current tax situation before the end of the 2013/14 tax year on the 5 April 2014. Tax planning advice is heavily dependent on a persons individual circumstances, since HMRC rules are often dependent on a specific situation.
We recently saw Chris Moyles lose a legal battle over his own tax affairs. Therefore, if you want to make the most of your tax allowances and receive financial planning advice on how to do this, it is recommended that you speak to a Independent Financial Adviser, as this will provide you with the assurance that any tax planning is both efficient and most importantly, legal.