Use it or lose it this tax year end

Tax

MoneyPlus Features Team

17th March 2014 at 3:11pm

‘Buy now while stocks last’. It’s appealing, isn’t it?

Well, with only 15 working days left this tax year, it’s a case of get in quick if you want to make the most of any tax savings available.

As the opportunity’s still there, I’ve pulled together my top 4 tax saving tips for the remaining days of this tax year. And don’t forget this year it’s the 5th April which falls on a Saturday in 2014 and might mean you need to take action sooner if you need to complete something on a working/banking day.

1) Make the most of your pension allowance of £50,000 for 2013/14

From 6th April 2014, the annual limit for saving into your pension reduces to £40,000, from £50,000. So, there’s just a little time left to make the most of any larger pension contribution before then.

There’s some points of detail about having sufficient earnings to cover the pension contribution you’re making (in some cases), and you should speak to an expert to get guidance on that.

Remember, if you have a personal pension (as distinct from an occupational  pension), the way tax relief works means that the amount you pay is lower than the figures above.

For example, to pay in £50,000 to your pension could actually involve you writing a cheque for £40,000.  You pay the net contribution, and your pension provider secures the 20% tax relief top-up from the government, so the end result is £50,000 paid into your pension. don’t forget this year it’s the 5th April which falls on a Saturday in 2014 and might mean you need to take action sooner if you need to complete something on a working/banking day. And don’t forget that any higher rate tax relief will need to be reclaimed through your tax return.

If you’ve not maximised your pension contributions over the last three years, you might be able to roll them up into one large contribution – again, talking to an expert will keep you right on this.

2) Use your ISA allowance of £11,520

You can’t carry forward any unused ISA allowance to the next tax year, so it’s use it or lose it.  For tax year 2013/14, you can invest £11,520 into a Stocks and Shares ISA.  Up to 50% of this amount, £5,760, can be saved in a Cash ISA.  There’s more information about ISAs in this blog

3) Inheritance tax-free gifts of up to £6,000

This is one which does roll forward but only for one year. The annual exempt amount for gifts is £3,000, when it comes to inheritance tax. And if you’ve not used it in one year, you can use it the following year.

For example, let’s say you were planning to make a gift to your grandchildren, perhaps to help with University costs or to help them get a foothold on the property ladder.  You could gift up £6,000 this tax year free of IHT if you haven’t made any previous gifts. This could be topped up after 6 April by a further £3,000.

And of course if this were a joint gift by you and your partner the IHT savings will be doubled.

So a joint gift of £50,000 to your grandchildren could mean as much £18,000 is immediately outside your estate by using by using both your exemptions and spreading the gifts across the tax year. The remaining the £32,000 would be free of IHT from the grandparents’ point of view after 7 years.

4) Using your capital gains tax allowance of £10,900

If you have a portfolio of shares or investment funds, your investment returns could be boosted by making use of your annual CGT exemption.

The CGT exemption is a valuable allowance. At £10,900 for 2013/14, it’s worth £3,052 if you’re a higher rate taxpayer paying tax at 28% on your capital gains.

But if you don’t use it one year, it’s lost forever. It can’t be carried forward. If you have a portfolio of shares or investment funds, your investment returns could be boosted by making use of your annual CGT exemption.

There’s a monetary argument (if you have a portfolio with significant capital gains) to realise enough gain each year to fully use your exemption. The proceeds can be reinvested, but the gain carried by the portfolio will reduce, and the overall net returns may therefore increase in the longer term.

For example, a gain of £54,500 could be cleared completely over a 5 year period even if the exemption remained at £10,900. This could save around £15,000 for a higher rate taxpayer.

And you could even repurchase the same shares through a Stocks and Shares ISA to make additional tax savings in the future.

Act now and still make a saving

Remember ‘time and tide waits for no man’ and neither does a tax saving, so get in quick while stocks last. Post below if you’ve got any questions regarding this tax year.

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The information in this blog is not financial advice.  A personal pension and a Stocks and Shares ISA are investments.  Their value can go up as well as down and may be worth less than you paid in.