Lynsey Carson, Wealth Planner
As we enter the festive period and Christmas trees and lights start to appear, it’s often a time when many people finally get a chance to think about their own financial arrangements with the intention of getting things in order before the start of the New Year.
There were many announcements in the two budgets of 2015 and many significant changes are coming down the line, especially with regards to retirement provision, so let’s make sure you don’t get a visit from the ghosts of missed financial planning opportunities this Christmas and start to think ahead.....
Have you made the maximum pension contributions this tax year and for the previous three tax years? If not, and you have the earnings this tax year to justify it, you could potentially make a contribution of up to £180k by sweeping up these unused allowances. Remember that next year (from April 2016), the annual allowance will be reduced for some higher earners, in some cases from £40k to £10k, so this is potentially the last time to maximise this opportunity and obtain tax relief at your highest marginal rate.
It makes sense wherever possible to use all of your available tax allowances before the end of the tax year. Thinking about it now will save a last minute rush eg. have you used your full NISA allowances? Children can have their own ISA’s now, albeit with a lower contribution limit, so review this when you can.
If you’re thinking about Inheritance Tax (IHT) planning, remember you have your annual gift exemption of up to £3,000 (or £6,000 if you didn’t use this exemption last year) and in addition you can give small gifts of up to £250 to as many people as you like (as long as it is not to the same person that received part of the larger gift eg. you cannot gift one person £3,250). There are other exemptions that can be used for IHT planning (in addition to the 7 year rule which essentially means that gifts given more than 7 years before death are out of your estate) so make sure you understand and use these where possible and, vitally, keep clear records if you do! It is worth noting that the inheritance tax nil rate band of £325,000 has been frozen until 2020/21 and we will also have the proposed “residential nil rate” band to consider from April 2017.
The yet to come
If your pensions annual allowance is going to reduce next year, have you thought about alternatives for saving for your retirement? The Lifetime Allowance is also going to reduce in April 2016 to £1m and there is valuable protection available for those who will or are likely to exceed this limit. Don’t risk the possibility of a large lifetime allowance tax charge if there are ways to prepare for it in advance.
The way in which dividends are taxed will change from 6th April 2016 so, particularly for those individuals who currently take dividends from their company rather than salary, this should be reviewed with your accountant as soon as possible. Investors could also be impacted with dividends being received outside of an ISA or pension.
There were of course other announcements made recently which will have a big impact in the future on Non UK domiciled individuals and also buy to let investors who currently offset borrowing costs against rental income. Buy to let received another body blow in the Autumn Statement with a hike in stamp duty which equally applies to second home buyers. These changes are beyond the scope of this blog to discuss in detail but suffice to say that these things need to be considered and planned for well in advance.
It’s an ever changing landscape and although there were also some positive changes this year (such as pensions freedom) it is perhaps bewildering at times to understand the logic of encouraging people to make suitable provision for their retirement whilst at the same time limiting the amount you can save . Use the opportunities to save tax that you have and do not procrastinate.
As Charles Dickens remarked “This is a world for action, not for moping and droning in”.