With the red-letter date of 5 April just weeks away, Killik & Co has drawn up a bite-size checklist of the best ways to make sure clients have made the most out of their money in this tax year and on into the next.
From investing in Lifetime and Junior ISAs for children and grandchildren to protecting pension funds, Killik & Co director of wealth planning Sarah Lord runs through six key points to talk through with clients before tax year-end.
1. There are plenty of opportunities for young people
On 6 April, the Lifetime ISA (LISA) will be up and running. This is one of the most notable developments we will see this year and represents a significant opportunity for the younger generation to get on board with saving.
Similar to the traditional ISA, the LISA will be tax-free but, under this new wrapper, savers enjoy an extra benefit - the government has promised to top up savings by 25%.
This savings product is specifically designed for the younger generation and is available to anyone between the ages of 18 and 39. With an annual allowance of £4,000, savers could potentially net a £32,000 extra bonus if they start paying in the maximum amount at 18 and continue until the age of 50 when they will no longer be able to contribute.
The caveat is that moneys must be used to buy a first home or will need to be locked away until retirement - otherwise savers incur early withdrawal penalties.
2. Use the ISA allowance to kick-start the financial future for children and grandchildren
From April 2017, consumers will be able to contribute £20,000 a year into an ISA - a significant step-up from this year's £15,240.
This year's allowance - amounting to £30,480 for a couple - allows investors to generate income free from any further tax, so it is important to consider appropriate ways to use up any untapped ISA allowances before the end of the tax year. If there is excess money to invest, start giving some thought to how to allocate that increased allowance from 6 April.
It is also important not to forget about children and grandchildren, as clients can invest directly for them too through a Junior ISA (JISA), making use of the £4,080 available allowance there.
3. It is still not too late to carry-forward the higher 2013/14 pension allowance
Each tax year, savers can carry-forward any unused annual pension allowances from the previous three years. To use ‘carry-forward', they must make the maximum allowable contribution in the current tax year, which is up to £40,000 depending on earnings.
This year is particularly important, especially for higher earners, as it is the last opportunity for savers to use the £50,000, which was the previous allowance in 2013/14 - before it was reduced. If it is not used now, it will be lost.
4. Protect pension funds
In recent years, the lifetime allowance has been dramatically reduced from £1.8m to the £1m it is today. There are ways to secure a higher lifetime allowance but clients must have applied before the end of the current tax year. If their pension benefits were valued at more than £1.25m on 5 April 2014, they could take out Individual Protection 2014, which will secure a lifetime allowance of up to £1.5m.
Alternatively, if they did not have £1.25m in April 2014, they may still be able to secure protection through Fixed or Individual Protection 2016, which can secure a lifetime allowance up to £1.25m.
5. Make the most of inheritance tax allowances
One of the best ways to save on inheritance tax (IHT) is to make use of inheritance gift allowances. Everyone can give away up to £3,000 a year, and up to £3,000 for the previous year, if this allowance was not previously used.
6. Consider other tax-efficient investment opportunities
Enterprise Investment Schemes (EIS) and venture capital trusts (VCTs) were introduced to encourage investment in small, early-stage companies and start-ups by offering tax reliefs to individual investors wanting to access the schemes. Benefits to investors are 30% in the case of EIS, with sheltered capital gains, no IHT and loss relief should the business fail.
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