The Government needs every penny it can get its hands on right now so the Chancellor will be pleased by the latest HMRC statistics that show that tax receipts from April 22 to December 22 reached £553.2 billion, £48 billion up on the same period last year.
Almost all tax takes are up except for alcohol and tobacco – perhaps not surprisingly as purses tighten but business tax receipts rose by 19%; income, capital gains tax and NIC by 13% and inheritance tax by a whopping 16%.
The Office of Budget Responsibility expects tax receipts to continue to rise as thresholds and allowances have been frozen so it’s more important than ever to make sure you are legitimately using all the allowances available to you where you can.
Here’s a quick reminder from our Senior Adviser, Nick Evans:
ISAs and Pensions
For those still working, earning and looking to plan for their longer-term financial future – start with ISA ( max £20,000 allowance) and pensions funding ( max £40,000 subject to earnings.)
Both ISAs and pension grow tax free but a pension contribution also attracts basic rate tax relief so £80 turns into £100 immediately and then you can also claim back higher or top rate tax via your tax return, if that’s not been dealt with through your payroll.
Pensions contributions act to extend your basic rate tax band so can help reduce higher rate tax or even help you avoid losing your personal allowance if you earn over £100,000, which is up to a 60% tax saving so very attractive.
Capital Gains Tax Allowances
The allowance is due to be halved from £12,300 to £6,000 from 6th April so if you have a planned disposal that is pending you may want to hurry up and get it over the line before April. Remember, capital gains tax losses can be offset against gains so always track all disposals and let us know so we can factor them into our planning for you.
IHT Allowances
Everyone has an annual allowance of £3000 per year that you can give away – great for Christmas and Birthdays or may be as part of an ISA funding plan for your ‘next gens’?
Add to that tax-free gifts on marriage or civil partnership of £5,000 to a child; £2,500 to a grandchild or great-grandchild or £1,000 to any other person
And of course, the little used regular gifting of surplus income which provides that as long as you can prove that you are funding gifts out of spare income and not from capital, they are all exempt from inheritance tax from day one, with no 7-year clock ticking, unlike a more significant capital gift. This is often really useful for funding school fees or nursery costs for grandchildren. It needs to be tracked but we can help with that.
And let’s give the final word to Moira’s legendary Uncle Peter: ( Read her ‘Something for a Rainy Day’ article if you don’t know who we mean!)
Those small gifts to her daughters extended across the family to a large number of great nieces and nephews and made use of the small gifts allowance that allows you to gift up to £250 to as many people as you like in a tax year and it’s all inheritance free! He also made regular gifts to a number of charities and claimed gift aid, as did they, so don’t forget that is also a tax relief that can have a wider benefit.
The FPC mantra for inheritance tax planning is GIVE AND LIVE and we can help you plan what might work for you and your family and make sure that any generosity doesn’t undermine your own position. From gifting shares in a trading business into Trusts, to a gift to your own Family Foundation, or to help your children or grandchildren onto the housing ladder, we can help you protect that legacy and save a bit of tax at the same time.
Estate planning is always on our planning agenda at our annual review meetings with clients but it may be that you have family members or friends who are missing an opportunity to plan, so feel free to share this post and if they need guidance, just let us know.
