Life Focus: Spring Cleaning
Published byIan Macdonald
- Contact the Team
- Have you used your annual exempt gift allowance?
- If you aren’t retired, have you maximised your pension contributions?
- Have you utilised your ISA allowance?
- Have you utilised your capital gains tax allowance?
Snowdrops are out, primroses have been sighted, and daffodils are well on their way to flowering. Lambing has started in the mild East, and the West will soon follow suit. There’s no avoiding it – Spring is on the way, and with it comes the urge to clean the house and bring your affairs up to date. The annual Spring Clean approaches.
In addition to a flood of colour, gambolling lambs and a retail surge in the household cleaning sector, Spring brings with it a new tax year.
Now is the time to make the most of annual tax exemptions and allowances. Read on for more . . .
Contact the Team
The above are just a few “Spring Cleaning” suggestions from WJM’s Wealth Planning department.
If you haven’t ticked any of the above off your list yet, give us a call to discuss things further. Who knows what other relevant financial planning points might have fallen down that gap in the sofa over the last year …
Contact the Team
If you have a savings, tax, pension or investment issue you'd like to chat about, please contact the team:
Ian Macdonald: im@wjm.co.uk 0141 248 3434
Grant Johnston: wgj@wjm.co.uk 0141 248 3434
Susan Hoyle: sjh@wjm.co.uk 0141 248 3434
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Have you used your annual exempt gift allowance?
You can gift £3,000 in each tax year to individuals and this gift is completely exempt from inheritance tax (IHT).
If you didn’t use the exempt gift allowance in the previous tax year, you can carry the allowance forward for one year only. So, if you didn’t use the allowance last year, and haven’t used it yet in this tax year, you could gift £6,000 to individuals before 5th April. The gift falls immediately outwith your estate. The IHT rate is 40% on the portion of an estate in excess of £325,000 (the current ‘nil rate band’) and so making regular use of the annual £3,000 allowance effectively reduces your estate’s potential IHT liability by £1,200 each year.
If you aren’t retired, have you maximised your pension contributions?
The pension wrapper offers the same tax advantages as the ISA, but with an added advantage. Personal contributions are made net of basic rate tax and are grossed up by the government. For example, if you make a personal pension contribution of £100, the government adds £25 to your pension plan. You can make personal contributions of up to £40,000 (or the amount of your gross salary, whichever is lower), in the current tax year.
In addition to saving for your retirement in a tax-efficient vehicle, pension contributions can also be used to mitigate higher/additional rate tax liabilities.
Pensions are also a useful inheritance tax mitigation tool, as explained in our recent Life Focus article
Have you utilised your ISA allowance?
The ISA is a tax efficient environment in which to invest. Capital gains tax does not apply to gains realised within an ISA. Income paid from an ISA is tax free (other than the 10% UK Dividend tax, which is non-reclaimable).
It was recently announced that the value of your total ISAs can be left to your spouse as a one-off extra ISA allowance after your death, maximising their ability to invest tax-efficiently and receive a tax-free income following bereavement. You can invest up to £15,000 in the current tax year in cash, stocks & shares or a mix of both approaches.
Have you utilised your capital gains tax allowance?
Gains on investments held outwith an Individual Savings Account (ISA) or Investment Bond are subject to capital gains tax at 18% (or 28% for higher rate and additional rate tax payers).
However, you can realise gains up to £11,000 in the current tax year without incurring this tax. For example, you could sell some gain-rich assets to lock in profit. You can potentially double your capital gains tax allowance by transferring gain-rich assets to your spouse - you can then sell assets up to a total combined gain of £22,000 each in the current tax year, without any capital gains tax implications.
The information contained in this newsletter is for general guidance only and represents our understanding of relevant law and practice as at February 2015. Wright, Johnston & Mackenzie LLP cannot be held responsible for any action taken or not taken in reliance upon the contents. Specific advice should be taken on any individual matter. Transmissions to or from our email system and calls to or from our offices may be monitored and/or recorded for regulatory purposes. Authorised and regulated by the Financial Conduct Authority. Registered office: 319 St Vincent Street, Glasgow, G2 5RZ. A limited liability partnership registered in Scotland, number SO 300336.
