Spring has sprung and the clocks have gone forward. It can only mean one thing: the end of the tax year.
It’s easy to get distracted by Easter eggs, the lighter evenings, and the warmer weather at this time of year, but it’s important not to forget that 6 April marks the start of the 2016-17 tax year.
The new financial year isn’t as fun as a new calendar year, or even a new Chinese year, but it is a date to keep in your diary, as there’s lots of financial planning to consider before the calendar ticks over to 6 April.
We’ve highlighted the three most important things to do before the end of this tax year – read on to find out more.
Use up your ISA allowance
This is probably the ‘big one’ that everyone should try to do before the end of the tax year, yet according to Halifax, savers lose out on a whopping £153 million in tax-free interest by not doing so.
With an ISA, you can deposit and/or invest a maximum of £15,240 tax-free each year. The allowance is the same for 16 and 17-year-olds, but they can only deposit it into a cash ISA, whereas over 18s have the opportunity to split their allowance between a cash ISA and a stocks and shares ISA.
If you’re opting for stocks and shares, don’t worry about your investments right now, as long as the money is in before the end of the tax year, you can decide what to do later.
Remember, if you don’t use the annual allowance, you lose it as it resets at the start of the next financial year. So, if you’ve got a high balance in your current account, or a different savings account, it’s worth transferring it to an ISA before the 5th April to maximise your savings.
If you don’t have an ISA, but would like to open one, you’ll need to leave enough time before the deadline for the account to officially open. If you’re doing it online, it’s usually instant, but in branch or over the phone can take longer.
As with any financial product, it’s worth taking the time to compare the market.
Cut your inheritance tax bill
Inheritance tax, or IHT, is the tax that’s paid on your assets when you die. The current threshold, known as the nil rate band, is £325,000 (or £650,000 if you’re married or in a civil partnership). If you leave an estate worth more than that, you’ll have to pay 40% on anything above the threshold.
You can cut the IHT payable by giving away up to £3,000 to your friends and family, each year. On top of that allowance, you can gift up to £250 to as many individuals as you like, for any reason.
It’s also perfectly legal to give away money as a wedding or civil partnership gift – the thresholds are £5,000 for a child, £2,500 for a grandchild or great-grand child, and £1,000 to anyone else.
One benefit to the IHT allowance is that any leftover allowance can be carried over to the next tax year, giving you up to £6,000. However, if you don’t use it up over the next 12 months, it will be lost for good. Your allowance would then reset at £3,000 at the start of the following year.
Capital Gains Tax allowance
Another tax break, albeit a much forgotten one, is the Capital Gains Tax (CGT) allowance, which currently stands at £11,100. This means that any profit from the sale of property, stocks and shares, and other valuables worth over £6,000 is completely tax free up to that threshold.
It’s worth remembering that this is an individual tax, so couples get a £22,200 allowance between them. As legitimate gifts from spouses or partners also don’t count towards the total, it may be worth transferring assets between one another. Important: to remain on the right side of the law, this must be a genuine gift with no strings attached!
You might also be able to claim a capital loss on any assets that have fallen in value, which can be offset against CGT, offering savings of up to 28%.
As with the annual ISA allowance, you’re not able to carry one year’s allowance over to the next tax year. However, with some careful financial planning, such as splitting assets and selling batches either side of 6April, you make the most of your CGT allowance and cut your tax liability.
|Jemma Porter is a news & research reporter for compareandsave.com. Having worked as a journalist on a number of personal finance websites; she now spends time researching and commenting on UK personal finance stories and investigating new ways to help our readers save money. For press inquiries, please visit our Media Centre.|