There is still time to consider your tax affairs before the end of the tax year on 5th April.
You might want to consider increasing your pension savings before 5 April 2020 as the unused annual pension allowance is lost after three years, and for those looking to do some inheritance tax planning it would be a good time to review (or make) your Will.
For most taxpayers the maximum pension contribution is £40,000 each tax year, although this depends on their earnings. This limit covers both contributions by the individual and their employer.
Note that the unused allowance for a particular tax year may be carried forward for three years and can be added to the relief for the current tax year, but then lapses if unused.
Hence the unused pension allowance for 2016/17 will lapse on 5 April 2020 if unused. Note that under the current rules the net after tax cost of saving £10,000 in a personal pension for a higher rate taxpayer is only £6,000.
GIFTS OUT OF SURPLUS INCOME
Inheritance tax only applies to gifts of capital. There is currently a very generous exemption from inheritance tax for regular gifts out of income. In order to qualify for the exemption it is important to set up regular transfers and to be able to prove that after those regular gifts you are left with sufficient income to support your normal lifestyle.
We can assist you in taking advantage of this generous exemption and keeping the necessary records for HMRC.
There are a number of insurance based products that take advantage of this relief and the regular payments could be used to fund school fees for children and grandchildren.
PASSING ON THE FAMILY HOME
The Labour party were proposing to reverse the recent Tory party inheritance tax cuts if elected. They were referring to the additional nil rate band for passing on the family home. This additional relief should be taken into consideration when drafting your Will and we can work with your solicitor to make sure your Will is tax efficient.
When fully phased in from April 2020, an additional nil rate band of up to £175,000 is available on death where your residence is left to direct descendants.