As has been well publicised, the tax year runs from 6 April to 5 April.
There’s still time for savers and investors to make the most of the tax breaks available to them, so here’s a list of handy suggestions to help your clients get ahead.
And if your clients have missed out on this year's tax deadline, then there is always next year.
1. Your ISA allowance
What to do before 6 April:
With a cash Isa or a stocks and shares Isa (or a combination of the two) you can save or invest up to £20,000 a year tax free. Any leftover allowance will be lost on 6 April, so if you’ve got any spare cash to save or invest, think about using it to open an Isa or top up your account. Also, some cash and stocks and shares ISAs are ‘flexible’ – meaning you can take money out and replace it within a tax year without it affecting your allowance. But not all Isas are flexible, so check the terms and conditions.
What to do after 6 April:
If you are in a position to, it makes sense for you and your spouse to take advantage of each other’s Isa allowance, particularly if one of you has more financial resources than the other. Equally, 16 and 17-year-olds actually get two Isa allowances, as they’re able to open a Junior Isa (which from 6 April will have a limit of £4,260) and an adult cash Isa so, from 6 April you can put away up to £24,260 in your child’s name tax free.
2. Consider topping up your pension
What to do before 6 April:
If you can, think about topping up your pension. Normally, between you and your employer, you can pay a maximum of £40,000 into your pension in a tax year (it’s called your annual allowance) before it becomes subject to tax.
What to do after 6 April:
Take steps to maximise your pension pot. If you haven’t managed to make full use of your £40,000 pensions annual allowance this year, you can carry it forward for up to three years. You can also boost your basic state pension by paying voluntary Class 3 National Insurance Contributions (NICs).
3. Limiting inheritance tax
What to do before 6 April:
You can act to help reduce a potential inheritance tax (IHT) bill when you’re no longer around. One way you can do this is by giving away up to £3,000 worth of gifts (such as money or possessions) each tax year, so they are no longer included when the value of your estate (property, money and possessions) is calculated. An IHT bill only applies if your estate is valued above £325,000. The exemption applies to individuals – so as a couple you can make £6,000 worth of gifts.
What to do after 6 April:
Consider whether you should be making gifts to reduce a possible IHT bill. It can also be carried forward for one year so, if you didn’t do this last year, then you can, as a couple, make £12,000 worth of gifts before 6 April. Who might the lucky recipients be?
4. Making charitable donations
What to do before 6 April:
Have you donated to any worthy causes this year? If not and you do so before the end of the tax year, you can receive full tax relief on your contributions through Gift Aid, or straight from your wages or pension via payroll giving. If you’re a higher rate taxpayer (i.e. if you pay 40 per cent or 45 per cent tax) you can claim back the difference between the tax on your donation and what the charity got back.
What to do after 6 April:
If you don’t usually Gift Aid your charitable donations, it’s certainly worth considering, as charities can claim an extra 25p for every £1 you give – and it doesn’t cost you a thing. Charities will normally provide you with a form to fill out to declare you’d like Gift Aid to be claimed on your gift. If you haven’t got one, the charity will happily supply it.
5. Be savvy with your capital gains tax allowance
What to do before 6 April:
Capital gains tax (CGT) is a tax on the gains (i.e. profit) you make when you sell something, such as an investment portfolio or second home. But everyone has an annual allowance before CGT applies, of £11,300. Like the Isa allowance, it doesn’t roll over, so if you don’t use it you’ll lose out – and may have to pay more tax in the future.
What to do after 6 April:
Firstly, good news: the CGT allowance is increasing from 6 April 2018, to £11,700. Not every investment portfolio is subject to CGT. If you’re looking for a tax-efficient way to invest, a stocks and shares Isa could be for you. Just like any investment, it carries risk – meaning you could lose some or all of your money – but if you do make a profit due to share price increases, you won’t be required to pay CGT on it.
6. Your dividend allowance is (more than) halving
What to do before 6 April:
If you receive dividends outside of a stocks and shares Isa, or you’re a company shareholder or director, you can currently receive £5,000 worth of dividends free of income tax. But this allowance is being slashed to £2,000 from the start of the new tax year, so use it up if you can.
What to do after 6 April:
With the rate being reduced, it might make sense to restructure your investments towards growth – as opposed to income, when you’re more likely to receive dividends – if you’re investing outside of a tax wrapper (such as an Isa). Hopefully you can make use of one or more of these tax pointers before 6 April 2018, and get set for next year so there's no end-of-tax-year dash.
Alistair Wilson is head of retail platform strategy at Zurich
