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THE INVESTOR
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TAX PLANNING
T
he approach of the
tax year-end on
5April should serve as
a reminder to review
your finances and ensure
that you have made the
most of all the available tax allowances and
exemptions – particularly as the squeeze
on the government’s finances could put
some of the more generous ones at risk.
Perhaps the most useful allowance
is the Individual SavingsAccount (ISA),
which allows investments to build up
without any further tax to pay on income
and capital gains. Every person has their
own allowance, £15,240 in the current
tax year, which means that couples can
shelter £30,480 between them.There is
also a Junior ISA (JISA) for children under
the age of 18.This year’s JISA allowance is
£4,080 and anyone – parent, grandparent
or family friend – can contribute to the
fund, which cannot be accessed until
the child reaches 18, when they will get
full control over the money.The ISA
allowance will rise to £20,000 from
April but any unused allowance from
this tax year will be lost.
Legislative changes introduced in
2015 further improved the long-term tax
benefits of ISAs.When one partner dies,
the surviving spouse can inherit their ISA
savings and retain the tax-efficient wrapper
that previously would have been lost.
Those with estate planning needs should
consider using their gifting exemptions
before tax year-end.The main one of these
is the £3,000 annual exemption, which
can cover just one gift or be split across a
number of different recipients.The value of
these gifts will immediately fall out of the
estate for InheritanceTax purposes.Other
exemptions cover wedding gifts, where
the amount varies from £1,000 to £5,000
depending on the relationship between the
donor and recipient, regular gifts made out
of surplus income and any number of gifts
worth less than £250 in a single tax year.
IHT planning for the family home will
also become easier fromApril,when
the Residence Nil Rate Band will be
introduced.Those who are married or
in a civil partnership can already pass any
unused part of the £325,000 nil rate
band for IHT to their partner.ThisApril,
a further £100,000 from the family home
will also be exempt from tax, provided it is
passed on to direct descendants.This will
rise gradually to £175,000 in the tax year
beginningApril 2020.
Pension pots can also, in most cases,
be passed on completely tax-free when
someone dies before the age of 75. For
deaths over that age, income taken from the
pension fund will be taxed at the recipient’s
marginal tax rate. However, whatever the
age of death, their pension is generally not
part of the estate for IHT purposes, nor is
it subject to Capital GainsTax (CGT).
“It’s an incredible way of passing on
your wealth, if you can afford not to touch
it,” saidTony Müdd, Divisional Director,
Development andTechnical Consultancy
at St. James’s Place.
Married couples and civil partners
will get the best out of their personal
allowances (set at £11,000 this tax year)
and other allowances and reliefs if they
plan their holdings so that both individuals
are shielding the maximum from tax.
The tax regime for CGT is relatively
generous with every taxpayer having an
annual allowance of £11,100 and gains
above that taxed at 20% for higher rate
taxpayers (10% for basic rate taxpayers),
or 28% for residential property-related
profits (18% for basic rate taxpayers). If
your spouse is not using their allowance,
you can transfer assets to him or her – a
procedure that is not treated as a sale and
so is not subject to CGT. If you both then
sell assets before the end of the year, you
can effectively double the allowance to
£22,200. However, if you don’t exploit
the allowance this year, it doesn’t roll
over and is lost forever.
“The best solution is to structure
your investments in as many different
forms for tax purposes as you can,” says
Müdd.“This, and future government
administrations,may change how tax is
applied, so using several wrappers is best.”
For further advice and information on
tax planning opportunities, please contact
your St James’s Place Partner.
This could be a particularly good year to
maximise pension contributions. While
Chancellor Philip Hammond did not make
any changes to the contribution limits in his
first Autumn Statement, the fact that the
government highlighted the annual £48 billion
cost of tax relief has sparked concern that he
may do so this year.
“Maximise what you can do on pensions now
because the current regime is unlikely to last,”
100% of earnings if that is lower, although
there are restrictions for those paying
additional rate tax. There is an overriding
limit of £1 million that can be accumulated
in a pension pot over a lifetime.
Even those who have little or no annual
earnings receive a tax-free allowance £2,880
a year, which will be increased to £3,600 by
basic rate tax relief. This can be a useful way
to save for children and non-earning partners.
says Tony Müdd, Divisional Director, Development
and Technical Consultancy at St. James’s Place.
He expects the Treasury to cut back on up-front
pension reliefs for higher earners.The introduction
of the Lifetime ISA fromApril also hints of a
different approach to tax incentives on savings.
Although pension tax relief has been limited
through recent law changes, it is still worth
making the most of the allowances available.
The current annual allowance is £40,000, or
PENSIONS ALERT
It’s an incredibleway of
passing on your wealth,
if you can afford not to
touch it
25TH ANNIVERSARY