April 6th marks the start of a new tax year. That means that your chance to take advantage of all the opportunities and allowances of the 2017/18 tax year will soon be coming to an end.
Why should you make sure that you have used your allowances?
Effective financial planning will take advantage of any benefits and tax exemptions which are useful for your lifestyle. Using allowances efficiently could:
- Help your money to work better for you
- Save your family money in the future
- Reduce your annual tax bills
The main six allowances to check include:
1. Gift exemptions
We discussed the importance of Inheritance Tax (IHT) planning in December. If you have started thinking about how you will leave money to your family, you may have looked into ‘living inheritances’.
Each year, you can gift up to £3,000 each year without incurring IHT (among other exemptions). This means that you could start to give your loved ones their inheritance whilst you have the opportunity to see them enjoy it, and simultaneously reduce the IHT they will pay when you pass away.
You can also carry leftover exemption over for one year. So, if you did not reach the £3,000 limit during 2016/17, you could give extra money away before the new tax year. Similarly, if you do not plan to use your full exemption before 6th April, you can take the remaining allowance into the new tax year with you.
2. Pensions Annual Allowance
Each year, you can pay a certain amount into your pension which is subject to tax relief. Using this allowance to the maximum will allow you to save more for your retirement, without losing money to an unnecessary tax.
The allowance ranges from £4,000 to £40,000 per year and is determined using your income level and whether or not you are already drawing a pension. You can use leftover allowance from the past three years to boost your deposits for this year. If you did not use your full allowance in 2014/15, make sure to use it before it becomes unavailable in April.
3. Dividend Allowance
In the 2017/18 tax year, you can take up to £5,000 in tax-free dividends. However, from April 6th, this allowance will be reduced to £2,000. That might not affect you currently, but you should be aware of the change so that you do not encounter unexpected taxes throughout the next tax year.
4. Capital Gains Tax Allowance
The Capital Gains Tax (CGT) Allowance is £11,300 for the 2017/18 tax year.
Capital Gains tax applies on the disposal or sale of certain assets, for example, property which is not your main residence, or investments outside of pension or ISA. The CGT allowance means any profits realised from selling an asset which are below £11,300 are effectively tax free. However, it is also a ‘use it or lose it’ allowance, as it doesn’t carry forward from one tax year to another.
5. ISA allowances
ISAs allow you to save or invest money tax efficiently. The current maximum levels of ISA contributions are:
- Adult ISA: £20,000 per year
- Lifetime ISA: £4,000 per year
- Junior ISA: £4,128 per year
Again, the ISA allowance does not carry over from year to year and must be used within the relevant tax year.
6. Married Couple’s Allowance/ Marriage Allowance
There are two types of tax allowance for married couples and civil partners:
If either partner was born before 6th April 1935: Married Couple’s Allowance could reduce your joint tax bill by £326 to £844.50. That could be a big boost for your household budget.
If both partners were born after 6th April 1935: Marriage Allowance could allow the lowest-earning partner to transfer £1,150 of their Personal Allowance to the other partner, so that their earning incur less tax. To apply, you must be married or in a civil partnership. The lowest-earning partners must earn less than £11,500, whilst the higher-earner must receive more than £11,501.
It is possible to get Married Couple’s Allowance/ Marriage Allowance backdated, so make sure to find out how much you are entitled to.
Seeking financial advice is one of the best ways to make sure that you get the most out of each tax year. An independent financial adviser will be able to tell you what’s changing and how it will affect you, as well as giving advice on where best to place your money to meet your goals.
For more information, contact us on 0800 612 8099 or request a call back by clicking here.