In our second post about tax planning ahead of the new tax year, we look at income sharing, pension contributions, ISAs and Capital Gains.
Income Sharing
Always try and share income (if possible) between spouses, and so perhaps keep one or both of you out of 40% tax. Yes, we know this is not always possible, but for those who are self-employed, you should think about forming a partnership with your spouse, that would allow this.
Pension Contributions
Where you can afford it, try and maximise pension contributions. Bear in mind that you can put up to £40,000 into your pension every year, and equally where you haven’t used the previous three year’s allowances, you could put that into your pension too.
As you are potentially talking about paying up to £160,000 into your pension, then yes, you obviously need to be able to afford it. And whilst this money would be locked away until age 55 at the earliest, it would be less money to pay tax on now and mean a bigger pension upon retirement.
We had one client who through no fault of her own, received a salary which put her into the 45% tax bracket. Therefore, it was more than worth her while to put the excess amount which caused this, into her pension. You get tax relief at your highest rate of tax – and 45% relief is not to be snubbed! For every £1,000 that went into her pension, she only needed to pay £550, so that’s a bargain!
ISAs
Putting money into an ISA will reduce taxation, as there is no tax on dividends received, and ISAs will never be subject to Capital Gains Tax (CGT), no matter how much you encash later on.
Capital Gains
Everyone has an allowance of £11,700 which means you can make gains of £11,700 per year and pay no capital gains tax at all. This is one of those allowances with a ‘use it or lose it’ scenario, so if you are thinking about cashing in on something which would take you over this limit, and it is possible to cash in part of it this tax year and another part next tax year, you could make gains of £23,400 with no tax to pay at all.
This obviously may not always be possible, but can be done with investments and mean less of your gains are given away in tax.
If you would like to find out more information or would like to start investing today, please contact Money Advice & Planning Ltd on 0345 241 1808 or e-mail us at enquiries@mapfinances.co.uk.
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