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End of Tax Year Considerations

End of tax year considerationsWith the end of the tax year rapidly approaching it is inevitably time to consider what actions if any can be taken to maximise the efficiency of our financial affairs.

Everyone is aware of the most common actions such as ensuring that you utilise your maximum ISA allowance of £15,240 each but there are a number of other areas equally as important that people tend not to focus on as much.

One example of this is in the area of maximising individual’s pension contributions. The annual allowance for making tax relievable pension contributions is £40,000, so consideration should be made to utilising the full annual allowance for 2016/17 by 5 April 2017 where circumstances allow.

‘Tax-relievable pension contributions’ relates to personal contributions and the availability of the Annual Allowance, and any carry forward relief is subject to 100% Net Relevant Earnings (NRE). It is possible to carry forward unused annual allowances from the previous three tax years, so it may be possible to receive tax relief in the current tax year on contributions in excess of £40,000 with a little planning. Whilst most people will not come near to maximising the full annual allowance – any pension contribution receives tax relief at your marginal rate of tax and is therefore well worth considering.

For those individuals investing in shares it is important to consider utilising your tax-free Capital Gains Tax annual exemption, currently £11,100. Each spouse or registered civil partner is entitled to the exemption each year, so gifts between spouses prior to sales of assets may be tax-effective. It may be worth crystallising capital losses where gains in excess of the annual exemption have been made. The deferral of sales until after 5 April may see tax paid at lower rates and provide significant cash flow benefits in terms of when tax needs to be paid.

Looking at profit extraction from companies or indeed for those with larger share portfolios individuals need to be aware that from 6 April 2016, company dividends are still treated as the top slice of income but will no longer be grossed up, and will be taxed at 7.5% in the basic rate band, 32.5% in the higher rate band and 38.1% in the additional rate band. However, the first £5,000 of dividends will be tax-free to the recipient, no matter which tax band you fall in. Interestingly enough the recent budget saw the Chancellor reduce the tax free threshold from £5,000 to £2,000 taking effect from April 2018.

Finally from an inheritance tax perspective the use of and the carrying forward of the £3,000 annual exemption should be reviewed, together with other possible exemptions such as those for small gifts of up to £250 per individual, regular gifts out of normal annual income and tax-free gifts in consideration of marriage, which can range between £1,000 and £5,000 depending on the relationship with the person getting married.

If you would like to learn more about the issues discussed in this article and how they may affect your finances please contact Shaun Bell or Stuart Read at Sabre Financial on 01548-856444 or via email at shaun@sabrefinancial.co.uk or stuart@sabrefinancial.co.uk .

 

 

 

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