Personal allowances and reliefs

Generally the personal allowance is £11,000. Non-savings income above the personal allowance is taxed at rates from 20% to 45%.
A higher marginal tax rate may be payable between £100,000 and £122,000 when the personal allowance is gradually withdrawn giving an effective marginal rate of 60% in this band for non-savings and also potentially savings income.
In some cases, you can transfer £1,100 of your personal allowance to your spouse or civil partner.

Taxation of savings

On 6 April 2016 a tax-free personal savings allowance (PSA) was introduced for savings income (such as interest) paid to individuals.
This means that a basic rate taxpayer is able to receive up to £1,000 of savings income, and higher rate taxpayers can receive up to £500 of savings income, without any tax being due. Tax rates from 20% to 45% apply to savings income above the available PSA. The PSA is not available to any saver with additional rate income.

Planning
• Is everyone in your family taking full advantage of their personal allowance?
• Are there opportunities to utilise any unused allowances this tax year?
• What can you do to take advantage of marginal tax rates and reduce the slice taxable at a higher rate?
• Would it be possible to consider the advantage of tax-free alternatives instead of a bonus or a salary increase?
• Is your dividend strategy as tax-ef”cient as it could be?
• Could you take advantage of the rent a room relief which, for individuals, is £7,500?

ISAs

Individuals who are 18 or over can invest up to £15,240 in an ISA. Growth, income and withdrawals from an ISA are free of income tax and capital gains tax, but the value of an ISA will form part of your estate for inheritance tax purposes. A Junior ISA of up to £4,080 is available for those who are 17 or under. ISAs are normally readily accessible (subject to scheme rules).
Help to Buy ISAs allow individuals over the age of 16 who are buying their “rst home to save up to £200 into an account per month. Buyers can also deposit a lump sum of up to £1,000 when they set up their account.
The money will earn interest and will also qualify for a 25% bonus (up to £3,000) from the government provided the funds are used to buy a “rst home.

Planning
• If you don’t already have an ISA, should you start one this tax year?
• Should you use the maximum tax-free investment allowance (£15,240 per individual)?

Pension contributions

There are limits to how much can be invested in a pension scheme before a tax charge is payable. To qualify for personal tax relief, a pension contribution must be made by or on behalf of a relevant UK individual.
Tax relief for pension contributions may be restricted by reference to net relevant earnings and the annual allowance. The annual allowance is currently £40,000 per year for those with income of less than £150,000. There is a minimum annual allowance of £10,000 per year, in most cases, for individuals with annual income of £210,000 or more. Complex rules also apply to individuals with ‘threshold income’ above £110,000 and, therefore, seeking pension advice is important. There is a lifetime allowance which is currently £1 million.
It is possible to carry forward any unused allowances from the previous 3 tax years.

Planning

A pension investment is many peoples’ cornerstone of retirement saving as payments into a pension scheme currently attract tax relief of up to 60%.
If you are over 55, you may be able to take your tax-free lump sum or start taking pension draw down even if you are still working.
However, those who are members of defined benefit schemes are likely to have restrictions as well as possibly costs if the pension is taken early.

There are however, other components of retirement planning:

• When might you retire and what are your income expectations?
• Should you increase your pension contributions?
• Have you reviewed both your employee and employer pension contributions when considering if you have exceeded the annual allowance?
• Have the potential inheritance tax benefits of maximising your pension fund been fully considered?

Get in touch with a member of our team to talk  accounting specialists on 0800 020 9542.

 

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