Maximising ISA/NISA allowances
Individual Savings Accounts (ISAs) are a fantastic way to invest money tax-free. New Individual Savings Accounts (NISAs) were introduced on 1 July 2014 with an annual limit of up to £15,000 which can be invested in cash or in stocks and shares or in a combination of these. These savings are totally tax-free during your lifetime, i.e. not chargeable to income tax or capital gains tax. NISAs are available to UK residents over the age of 18. Junior NISAs are also available (where a child does not already have a Child Trust Fund) with an annual subscription limit of £4,000.
Any amount invested in the current tax year in an ISA will be counted against the increased subscription. Where payments have already been made to an ISA in the year, you are unable to subscribe to a NISA of the same type in the year - however, you can top up the existing ISA to the new subscription limits.
George Osborne announced in his 2014 Autumn Statement that ISAs are also now capable of being transferred between spouses or civil partners on death. Previously, the cash or investments held in an ISA lost its tax free status on death so this was welcome news.
If you haven't yet invested within an ISA/NISA, this is the perfect time to get one in place before the end of the current tax year.
Gift Aid donations
By making donations to registered charities, higher-rate tax payers can claim Gift Aid tax relief. Relief is given by extending the basic-rate tax band (currently £31,865 after personal allowances), increasing the amount of income chargeable at the lower rates of 10% and 20%, and reducing the income chargeable to the higher rates of 32.5%/40% or 37.5%/45%. This often results in an income tax repayment being due.
Personal pension contributions
Higher rate tax payers should ensure they maximise their personal pension contributions. Tax relief is given in the same way as charitable gift aid donations. Higher-rate taxpayers may find that by doing so they have not only swelled their pension coffers, but that there may be a welcome income tax repayment from HMRC.
Maximising Capital Gains Tax ("CGT") exemptions
Each individual has an annual CGT exemption of £11,000 in 2014/15. This means that the first £11,000 of profit you make when you sell or transfer a qualifying asset is exempt from CGT.
Timing is everything as your annual exemption is renewed annually on 6 April. If you intend to dispose of an asset which is likely to give rise to a CGT charge, it is worth considering whether you have made full use of your annual allowance for this tax year yet and if not, whether it's possible to spread the transfer or sale over two tax years by making a first tranche before 5 April and a second in the new tax year. This needs careful consideration however and advice should be sought as to whether this is possible in the circumstances.
Depending on your circumstances, there may also be opportunities to transfer assets between spouses or civil partners prior to a disposal (which can be done free of CGT) to take advantage of two annual exemptions or to take advantage of a lower tax rate if one partner is a basic rate tax payer. This may take time though so early planning is key.
The rate at which you pay CGT depends on the level of your taxable income. If you pay tax at the higher (or additional) rate on your income, the rate of CGT will be 28%. At the lower rate, gains will be taxed at a rate of 18%.
Non UK residents should also take note that as of 6 April 2015, they are brought into the CGT regime when disposing of UK residential property. While property valuations will in most cases, be recalculated to 5 April 2015, so that only future gains are caught and taxed, it is well worth reviewing the likely CGT exposure, particularly if a sale or transfer of the asset is contemplated in the future. After 5 April, all disposals of UK residential property by non residents will need to be reported to HMRC within 30 days of the disposal. Even if the sale of the property is unlikely to result in a CGT charge (for example because the gain is covered by the annual exemption or because there is actually a loss), the disposal will still need to be reported to HMRC after 6 April.
Inheritance Tax ("IHT") - Annual gifts of £3,000
There are many ways to plan for IHT and mitigate your estate's exposure but one of the most simple, even as part of a larger planning strategy, is ensuring that full use is made of annual gifting allowances.
Each individual has an annual gifting exemption of £3,000. This means that you can gift £3,000 per tax year and this amount will automatically fall out of your chargeable estate for IHT purposes. Where you didn't use this exemption in the previous tax year, it can be carried forward for one year only and used in the current tax year instead. Unused exemptions from prior years will, unfortunately, be lost.
If you haven't used your allowance in this tax year or the last one and are concerned about your IHT position, now might be the time to consider making a gift of £6,000 with a further £3,000 available after 6 April (depending on whether you are in a position financially to do so). Remember that this exemption is per individual so spouses and civil partners could get twice as much out of their joint estate if the gift is made jointly. In addition the gift doesn't need to be a cash gift - it could be of an asset of that value.
There are many planning opportunities which might be of benefit before the end of this tax year. Our Tax team are delighted to provide advice and assistance on tax year-end planning. Please don't hesitate to get in touch with us if we can be of any help.