With just a couple of days left until the end of the tax year it’s time to consider making use of the following before 5 April 2017 comes around.
Making an additional pension contribution will be particularly beneficial if you have a high marginal income tax rate for 2016/17. Maybe you have income taxed at 40% or 45%, although the tax saving can be even higher if a contribution allows you to retain your personal allowance or child benefit.
With low interest rates, cash ISAs may not be particularly attractive right now. However, for 2016/17, an innovative ISA is available, allowing you to shelter £15,240 of peer-to-peer lending. Stocks and shares ISAs could be an option for investors who can save capital gains tax (CGT) at the higher 20% rate. And don’t forget the £4,080 that you can put into a junior ISA for each child or grandchild.
EIS and SEIS:
Although high-risk investments, this risk is mitigated if you can benefit fully from the available tax reliefs. You could also invest in a professionally managed portfolio rather than in individual companies. With the SEIS, the combined income tax and capital gains tax reliefs can save tax of up to 64%.
Venture capital trusts (VCTs):
You can obtain 30% income tax relief by investing in VCTs. However, this is a longer-term investment and like EIS is quite high-risk – although the 20 to 80 different companies that a VCT typically invests in should give a good level of diversification.
CGT exempt amount:
Aim to use your exemption of £11,100 by making disposals. If you have already made gains of more than £11,100 this tax year, dispose of investments standing at a loss that can be set against the gains. It might also be beneficial to dispose of further investments if gains will only be taxed at the basic rate of 10%.
Gifts up to £3,000 a year are exempt. If you have not used the exemption for 2015/16, you can make IHT-free gifts of up to £6,000 before 6 April 2017. Small gifts up to £250 per person in each tax year are also exempt from IHT.
At Hornby’s we always look at these options for all our clients as it makes up a large part of our financial life plans. Remember we are here to help therefore if you would like an appointment pre the tax year end its time to get moving!