According to Benjamin Franklin in 1789: “In this world nothing can be said to be certain except death and taxes.”
A more meaningful certainty is that 5th April marks the end of this current tax year and having, no doubt, recently finalised your self-assessment for the last tax year, you may wish to make the most of some of those allowances and tax reliefs which will be lost come the 6th April.
The annual allowance for pension contributions is £40,000. For every £80 contribution from a basic rate taxpayer the Government will add £20 whilst for a higher rate taxpayer, each contribution of £100 costs £60 as a result of the additional relief applied.
Since an Individual’s personal tax free allowance reduces at a rate of £1 for every £2 where earnings exceed £100,000, anyone above £123,000 loses this allowance entirely. The effective rate of income tax for those with earnings between £100,000 and £123,000 is, therefore, 60 per cent. Making a pension contribution which reduces earnings between these figures is consequently beneficial.
Furthermore, any unused annual allowance for the previous three tax years can be utilised to increase the amount of contribution permitted through something called “carry forward”, up to £160,000.
Given child benefit reduces by one per cent for every £100 the highest earner in the household’s annual income exceeds £50,000 a year, where earnings top £60,000 no child benefit can be received and is paid back via increased income tax. However, one way of retaining some of the available child benefit would be to make a pension contribution thereby reducing earnings.
Next on the list should be the dividend tax free allowance.
Since this is reducing from £5,000 to £2,000 from 6th April, married couples should consider transferring assets between themselves prior to 5th April to enable both to maximise this valuable concession, particularly where one spouse pays income tax at a lower or nil rate.
The capital gains tax annual allowance is £11,300 per person – if it is not used prior to 6th April, it will be lost. So individuals should look to crystallise any gains up to that figure from any non ISA investments. Spouses may also wish to consider transferring assets between themselves to maximise their individual allowances.
Some higher rate taxpayer with gains exceeding this year’s allowance, who have access to a company pension scheme where tax relief is provided “at source”, could consider making an ad hoc pension contribution to reduce their earnings sufficiently below the higher rate threshold and so their tax liability.
The starting rate for savings allowance is £5,000. By making full use of this any Individual can receive up to £17,500 in this current tax year with no tax to pay given that the personal allowance is £11,500 and the personal savings allowance (for interest) is £1,000.
Up to £20,000 per person can be invested within an ISA prior to 6th April where there is no tax liability on any Interest earned and no income tax or capital gains tax liability on any future income/withdrawals. This can be maximised via an ISA wrapper in a process known as “Bed & ISA”.
Consider also inheritance tax exemptions – any individual is able to gift up to £3,000 in any tax year and, where they have not used their annual exemption in 2016/17, they can are able to “double up” in this tax year. This facility ceases, however, after 6th April as you can only ever “carry forward” the previous year’s exemption.
You can, of course, make as many individual “small gifts” of £250 as you wish.
The clock is ticking.