News details
Make the most of savings before the tax year ends
2/22/2010
Alok explains how individuals can take advantage of last-minute savings before the end of the 2009/10 tax year.
It’s hard to believe that we will soon be approaching the end of this financial year, but there is still time to make some significant savings before new changes come into force in April.
ISA Contributions
Get the most from your ISA contributions before the tax year ends. An ISA is still the main method of investing your hard earned savings and anyone from the age of 16 can pay a maximum amount of £3600 into a Cash ISA within a tax year, which will rise to £5100 from 6 April 2010.
Those aged between 18 and 49 now can currently contribute a maximum of £7200 into an ISA. They can invest this full allowance in an Equity ISA, where funds are invested into stocks and shares, or invest up to £3600 into a Cash ISA and £3600 into an Equity ISA. This allowance will increase to £10,200 in the new tax year. A couple who are both below 50 now can invest a total of £14,400 in an ISA before April 6 2010.
50 year-olds and over today can already invest £10,200 into an ISA. Any growth in investment resulting from an ISA is tax-free, so anyone with funds to invest who hasn’t already invested the maximum amount should consider doing so whilst there is time left.
Transferring Assets
Tax planning is especially important for higher earners, as a 50% tax charge will apply to taxable income that exceeds £150,000 from April 6 2010. The government has announced that these high earners will lose their standard personal allowance, which will be frozen at the 2009/10 tax rate of £6475. Those who earn between £100,000 and £112,950 also stand to lose some or all of their standard personal allowance.
With this upcoming tax rise, couples should take action now and split their assets. If one partner in a marriage or civil partnership is a much higher earner, they should transfer their assets to the account of the lower income earner, in order to make significant savings. There are several other tax planning methods where this personal allowance can be protected, so advice from an Independent Financial Adviser (IFA) should be sought.
Pension Contributions
Anyone, including retired people and children, can pay up to £3600 gross into a personal/stakeholder pension, which only costs £2880 net, as investors are eligible to receive 20% tax relief. Financially secure grandparents may be able to make a great investment in their grandchildren’s future through stakeholder pensions. HMRC is giving you £720 for free.
Capital Gains Tax Allowance
Use up your capital gains tax annual exemption for this tax year, as this cannot be carried forward. The exemption is £10,100 per individual for 2009/10, but this must be utilised before April 6 2010.
Consider the timing of the sale of your assets, such as gains made on property or shares, to make full use of your annual exemption.
Enterprise Investment Schemes
This is a government scheme that provides tax relief for investors who subscribe for qualifying shares in qualifying companies.
To benefit from income tax relief, an individual with up to a 30% interest in the company can reduce their income tax liability by an amount equal to 20% of the amount invested, with relief restricted to the amount of income tax otherwise payable. The minimum subscription is £500 per company and the maximum per investor is £500,000 per annum.
Venture Capital Trusts
Anyone can invest up to £200,000 into a Venture Capital Trust (VCT) which attracts tax relief at 30%. Dividends and capital gains from a VCT are not subject to income tax.
VCT and EIS investors must be aware of the slightly greater investment risk and lower liquidity in return for the attractive tax reliefs given.
Tax planning can be a complicated process, so please seek the advice of an IFA who will help you work out the best strategy. Be very careful this tax year, as 5 April 2010 lies on Easter Monday, which means all tax planning has to be completed well before 1 April 2010. The sooner you make an appointment with an IFA, the more you will be able to save.
For further information on how Alok can help you with your personal or business planning needs, contact Dhanda Financial, 52 Dean Street, Newcastle upon Tyne, NE1 1PG, telephone 0191 255 8960, or email alok@dhandafinancial.com
