Six money saving tips for the end of the tax year
As the tax year draws to a close, here are a few simple planning ideas to help you make the most of your available allowances, reliefs and exemptions.
A personal savings allowance on income such as bank or building society interest became available to taxpayers on 6 April 2016.
Savers can earn up to £1,000 in interest tax free each year if they are a basic rate taxpayer or £500 if they are taxed at the higher rate. Additional rate taxpayers get no personal savings allowance.
You could think about moving family savings between individuals to make the most of this allowance.
Also, from 6 April 2016, a tax-free dividend allowance of £5,000 became available to each individual taxpayer. Dividend income above that amount is treated as their top slice of income and taxed at 7.5%, 32.5% or 38.1% within their basic, higher and additional rate bands respectively.
The dividend allowance will decrease to £2,000 in April 2018. If you are able to flex the amount and timing of your dividend income, you should consider doing this to make the most of the higher rate allowance whilst you can.
Whilst the interest on ISAs is currently low, they are still a useful place to put savings if you have reached your annual savings allowance or are ineligible for one. The maximum amount you can save in ISAs up to 5 April 2017 is £15,240, increasing to £20,000 for the coming tax year.
In 2017/18, it will be worth considering the new Lifetime ISA (LISA). This allows adults under the age of 40 to save up to £4,000 a year and receive a 25% bonus from the government. Any amount you currently hold in a Help to Buy ISA can be transferred into this new ISA during the 2017/18 tax year without counting towards the limit.
The funds from a LISA can be used to buy a first home or extracted after the age of 60 tax free.
Investments with tax advantages
Investing in EIS and SEIS shares, venture capital trust units, and qualifying social enterprises offers several tax advantages. These include up-front income tax relief, and the possibility of matching and deferring capital gains (with some schemes).
If you are looking for investment options for the coming tax year, now is the time to do it so you benefit from the reliefs, allowances or exemptions for the whole year.
Gifting from income
Certain monetary gifts can be given and received tax free during your lifetime, removing them from your estate and the potential for inheritance tax (IHT) charges. There are two gifting options that might be particularly beneficial at the end of the tax year.
Any number of small gifts can be given away to as many people as you wish during the tax year, and be exempt from IHT. The only limit is that you should gift no more than £250 to each person in this way.
Gifts totalling £3,000 (to the same or different people) in a tax year are also exempt. If all or part of this exemption remains unused, the balance can be carried forward for one year. This means you could use any remaining allowance from 2015/16 as well as your 2016/17 allowance before the tax year ends.
If your adjusted net income exceeds £100,000, your personal allowance is reduced by £1 for every £2 above that income level. Once your income exceeds £122,000, your personal allowance will be zero.
You should consider making pension contributions or charitable donations to bring your income below £100,000 to retain your personal allowance.