With the 2014/2015 tax year end fast approaching on 5 April, now would be a good time to check all your finances are in order and also to assess whether you have used all the allowances available to you. Here is a list of 8 items I feel you should check before the end of the tax year.
1) Make use of your ISA allowance – You can shelter up to £15,000 from tax this year ( 6 April 2014 – 5 April 2015) and every subsequent tax year. You ISA can be split between cash and stocks and shares depending on your preferences. Investments in an ISA are protected from any further income or capital gains taxes. Make use of this allowance as if you don’t , it will be lost forever. ( Your new ISA allowance for 6 April 2015 – 5 April 2016 is £15,240)
2) Use your pension allowance – Pension changes that will come into effect on 6 April make them more attractive then ever for many savers. Most people under the age of 75 can contribute to a pension and receive income tax relief ( 45% max). Even non-taxpayers and children can save up to £2,880 in a pension and automatically receive £720 in tax relief.
This should be a priority over an ISA for those looking to save long-term and who are on the higher or additional rate tax bands (For people on basic rate tax bands, I feel ISA is more beneficial).
You can invest up to a maximum of £40,000 gross in a pension in this tax year.
3)Use your capital gains allowance – Capital Gains allowance is often called the secret tax shelter as many people either don’t know or don’t use them. You can read more about it in an article I wrote here
This tax year, you can realize gains of up to £11,000 without paying tax. So if you haven’t yet used this allowance and you currently have shares or funds outside a tax wrapper (such as an Isa or SIPP) that are showing a gain, you can sell these and use the proceeds to top-up your ISA or SIPP. Doing this could reduce the amount of tax you pay in the future and thus increasing your return on investment.
4) Make use of a Junior ISA for your children – The allowance this year is £4000 and the tax benefits are similar to adult ISAs. Starting to invest early for your child (under 18) can ensure that returns are maximised through the power of compounding and it will give them a strong financial position when they grow up.
5) Shop around for next years ISA – Just because your ISA delivered god returns this year does not necessarily mean it will outperform next year. This is especially true for cash ISAs where rates of interest are at record low levels. Thus by shopping around and getting an ISA that even pays 0.5% above your current deal could prove crucial in the long-run.
6) Reduce your Inheritance Tax Liability – You can gift the annual exempt amount, currently £3,000, from capital each year and this will be exempt from Inheritance Tax . Additionally, you can also carry forward any unused amount from the previous tax year. This means that a married couple could gift up to £12,000 (£6,000 each) before 5 April. (Gifts above £3,000 will be tax free providing the individual making the gift is alive for the next 7 years. See my Inheritance Tax article here for more details)
7) Consider VCTs – VCTs are in essence sophisticated, long-term investments offering a chance to invest in small fast growing UK companies. In return for the extra risk, individuals can receive a tax rebate of up to 30%, tax free dividends from the VCT and no capital gains when tax when you sell the VCT. I recommend that VCTs should only be used by sophisticated investors with a strong appetite for risk. Some VCTs that Hargreaves Lansdown recommends are Albion VCTs, British Smaller Companies VCTs and Hargreaves Hale AIM VCTs.
8) Find out about entrepreneur relief – If you are a business owner, make sure you take advantage of the tax breaks available to entrepreneurs. When you’re raising funds for your business, check out the government’s Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS). The schemes are aimed at helping small businesses to secure the capital they need by offering tax relief to investors – this can be a really big win. There are also tax breaks available when you sell your business, whether partially or in full, such as Entrepreneur’s relief which means you’ll pay only 10% Capital Gains Tax when you sell those assets.