The Financial Group
We simplify all those essential financial decisions
Chancellor Philip Hammond delivered his Spring Statement recently & although there were no new tax announcements, b elow we provide the key points & reminders of what can still be done before 5th April 2018. ISAs o If you don’t use your 2017-18 ISA allowance before the end of the tax year you lose it forever. In April 2017 there was a substantial increase in the annual ISA allowance to £20,000 (£40,000 for a couple). o To encourage even wider use of ISAs the Government has introduced several changes in recent years that have potentially made the accounts even more attractive. You can transfer ISAs as often as you like, including previous years’ ISA savings. Money held in a cash ISA can be transferred into a stocks and shares ISA and vice versa. Be aware, though, that some providers restrict transfers in. If your ISA is flexible, you can take cash out then put it back in during the same tax year - without reducing your annual ISA allowance. If you have made use of this facility in the current tax year, make sure you put they money back into your ISA before the end of the tax year on 5 April. April 2017 saw the introduction of the Lifetime ISA (LISA), which is aimed at helping younger adults to save for retirement or build up funds towards the purchase of a 1st home. A LISA can be opened by anyone between the ages of 18 and 40 and while they can only put in £4,000 a year (which comes out of their full ISA allowance), the government boosts it by 25%, so that for every £4 saved, the Government adds £1. This means a maximum bonus of £1,000 on the annual £4,000 limit. Pensions o Pensions also have an annual allowance. The standard rule being that an individual can contribute the lower of their annual earned income - or £40,000. (The annual pension allowance is dependent upon several factors and the £40,000 limit may not apply, depending on individual circumstances.) o The annual allowance isn’t necessarily lost at the end of the tax year, as it may be possible to ‘carry forward’ any unused allowance from the previous 3 years. o Don’t forget that even you are not earning you can still put £2,880 into a pension (as long as you are under age 75) and Hector & his cohorts will give you an additional £720 to make the total £3,600 Dividends o The level of dividends individuals can receive tax free will be cut from £5,000 to £2,000 from 6 April 2018. o If you are potentially affected by the reduced allowance you should talk to a tax expert urgently to determine if there is any action you can take to minimise the impact. Capital gains tax o One allowance that many investors forget is their ‘Annual Exempt Amount’ for capital gains tax (£11,300 in 2017-18). o An individual doesn’t pay tax on gains arising from the sale of eligible assets (such as shares held directly) until they’ have gone over this level. o Anyone with a large portfolio of shares outside an ISA should consider using as much of this allowance as possible each year – by selling assets that have risen in value – or they could be storing up a large exposure to Capital Gains Tax (CGT) for the future. Inheritance tax o Most people wait until death before passing on their wealth through their wills. But, lifetime gifts can have a transformative effect on a family’s life and reduce an inheritance tax (IHT) liability. o There are a number of annual gift allowances, which get lost if they are not used before the tax year end. You can give away £3,000 each year and this will not be subject to IHT. You can give as many gifts of up to £250 per person as you want during a tax year, as long as you haven’t used another exemption on the same person. A financial ’leg-up’ for the kids o You can save tax efficiently for children and grandchildren. With a Junior ISA, you can put aside up to the maximum subscription limit (£4,128 for 2017-18) each year, and there are the same tax benefits as an adult ISA. It is important to remember the money is locked away until the child is 18 at which point they can start withdrawing money. o As mentioned previously, anyone with no earnings can also get 20% tax relief on pension contributions of up to £2,880 per year (which boosts the value to £3,600). This includes children. Money in children’s pensions canott be accessed until they are 55 but can then be used to boost their retirement savings. 2018-19 tax year changes o There were no tax changes in the Spring Statement. However, some significant tax changes announced in previous Budgets could affect you when the new 2018-19 tax year begins on 6 April. Capital Gains Tax (CGT) o The capital gains tax annual exempt amount is increasing from £11,300 in 2017/2018 to £11,700 in 2018/2019. o The capital gains tax annual exemption for most trusts becomes a maximum of £5,850 for 2018/2019. Disabled person’s trusts are entitled to the full exemption. o The capital gains tax rates remain 10% and 20% for basic and higher rate taxpayers, respectively, for 2018/2019. Trustees and legal personal representatives pay the 20% rate. o These rates do not apply to disposals of residential properties that do not qualify for private residence relief - e.g.: Buy2Let property. These are taxed at 18% and 28%. As always, if any of the above prompts any questions, or you need any help, please do not hesitate to contact us.