Use it or lose it – getting near to the tax year end
This time of year it is worth looking seriously at using up allowances or bracing yourself for losing the unused allowances. Uncertainty around the next budget makes this a more urgent proposition, but as far as I am aware, much of what is in the press is speculation, pure and simple, with little substance or perhaps a little mischief making.
The big allowances to take up are ISAs and pensions, with pensions being less urgent assuming the dire predictions in the press are wide of the mark. If the Chancellor changes the basis for pension tax relief, then the loss of allowances may be total, so you “pays your money and takes your choice”.
ISAs allow you to place up to £15,240 in cash or investments out of reach of the taxman for Income and Capital Gains Tax. This is a true “use it or lose it” allowance, as you cannot transfer unused allowance in one year to the next. Saving as much as you can in this tax year allows you to put the same again into next tax year, (as the Chancellor has sneakily not announced any increase in the ISA allowance for next year).
To be fair, 2016/17 marks the establishment of a dividend allowance of £5,000 and a personal savings allowance of £1,000 for basic rate taxpayers and £500 for higher rate taxpayers, so the ISA freeze will be more than offset elsewhere, (although at the cost of considerable complication).
Pension tax relief is potentially a bigger opportunity – you can put up to £40,000 or the equivalent of your annual salary, whichever is the lessor in a pension scheme in a year. You will receive tax relief on the premium at your marginal rate, (with complications if you are taxed at more than basic rate). Unused relief in up to 3 previous years can be used in the current year. You will find further details here; https://www.gov.uk/tax-on-your-private-pension/overview.
Using allowances to the full is the safest way of tax planning imaginable, so making sure you use all of your entitlements is merely prudent, not “taking advantage”. For those who still have surplus capital to invest, make sure your spouse has used up all of their allowances before looking for any more complicated solutions.
How the new dividend allowance and personal savings allowance will pan out remains to be seen, but these will also be on a “use it or lose it” basis, so talking to your adviser before the end of next tax year appears essential.
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If you know you need formal advice, have a look at http://bankfield.net/personal/retirement-planning/, or ask around for a recommendation, it might even be me.