Barry Rogers, Sales and Research Senior Manager in the Cambridge office writes:
Use it or lose it
ISA allowance
I have never understood why people wait until the end of the tax year to do their ISA. Tax free (ish) returns are surely worth grabbing as soon as possible – see actions on 6 April!
Pension Contribution
Again why wait but if you have not maximised your pension contribution for this tax year now is the time to do it and claim tax relief in this tax year.
EIS/VCT investment
Tax relief is available on these investments. While they are not for everyone, now that pension contribution limits are more restricted these are becoming more popular.
Urgent tax planning
Avoid the child benefit tax charge
An individual pension contribution can ensure that the value of child benefit is saved for the family, rather than being lost to the new child benefit tax charge. And it might be as simple as redirecting existing pension saving from the lower earning partner to the other.
The child benefit, worth £2,475 to a family with three children, is cancelled out by the tax charge if the taxable income of the highest earner exceeds £60,000. There's no tax charge if the highest earner has income of £50,000 or less. As a pension contribution reduces income for this purpose, the tax charge can be avoided. The combination of higher rate tax relief on the contribution plus the child benefit tax charge saved can lead to effective rates of tax relief as high as 64% for our family with three children.
Recover personal allowances
Pension contributions reduce an individual's taxable income. So they're a great way to reinstate the personal allowance and the age related element of personal allowance.
Personal allowance. For a higher rate taxpayer with taxable income of between £100,000 and £120,000, an individual contribution that reduces taxable income to £100,000 would achieve an effective rate of tax relief at 60%. For higher incomes, or larger contributions, the effective rate will fall somewhere between 40% and 60%.
Age related element of personal allowance. For a client between the age of 65 and 74, a pension contribution reducing taxable income to below £26,100 will reinstate the age related element of their personal allowance. The full amount of the age related element is £500 in 2013/14 - saving the client £212. But the allowance is wiped out once income exceeds £28,220.
There are lots of issues for urgent planning concerning pensions.
Sweep-up unused allowance from 2011/12
Unused pension annual allowance from 2011/12 must be used this tax year - or it's lost forever. For a 40% taxpayer, this could mean a missed opportunity to save up to £50,000 at a net cost of only £30,000.
Use next year’s allowance now
Some clients may want to pay more than their 2014/15 allowance - even after using up all their unused allowance from the three carry forward years. To get round this, they can pay against their 2015/16 before 6 April by closing their 2014/15 PIP early. This opens up their 2015/16 PIP - allowing an extra £40,000 to be paid in this tax year.
Finally, things to do on 6 April 2015
- Make your ISA contributions and get a whole year's tax free growth in.
- Make pension contributions. Again get a whole year's growth on the investment.
- Get some advice on the new pension rules. This potentially affects people of all ages, not just those nearing retirement. Some of the changes involve what happens if the policyholder dies.
To learn how the Chancellor's Budget affects you please visit our Budget page.
Price Bailey Private Client LLP is an appointed representative of PB Financial Planning Ltd which is authorised and regulated by the Financial Conduct Authority. The information contained herein is of a general nature and not intended to address the circumstances of any particular individual or entity. Whilst we have made an effort to provide accurate and up to date information, it is recommended that you consult us before taking or refraining from taking action based on matters discussed. _____________________________________________