Tax allowances: use them or lose them

With just a few months left until the end of the tax year, consider making use of the following before 5 April 2017 comes around.

Pension contributions: Making an additional pension contribution will be particularly beneficial if you have a high marginal income tax rate for 2016/17. Maybe you have income taxed at 40% or 45%, although the tax saving can be even higher if a contribution allows you to retain your personal allowance or child benefit.

ISAs: With low interest rates, Cash ISAs may not be particularly attractive right now. However, for 2016/17, an innovative ISA is available, allowing you to shelter £15.240 of peer-to-peer lending. Stocks and shares ISAs could be an option for investors who can save capital gains tax (CGT) at the higher 20% rate. And don’t forget the £4,080 that you can put into a junior ISA for each child or grandchild.

EIS and SEIS: Although high-risk investments, this risk is mitigated if you can benefit fully from the available tax reliefs. You could also invest in a professionally managed portfolio rather than in individual companies. With the SEIS, the combined income tax and capital gains tax reliefs can save tax of up to 64%.

Venture capital trusts (VCTs): You can obtain 30% income tax relief by investing in VCTs. However, this is a longer-term investment and like EIS is quite high risk – although the 20 to 80 different companies that a VCT typically invests in should give a good level of diversification.

CGT exempt amount: Aim to use your exemption of £11,100 by making disposals. If you have already made gains of more than £11,100 this tax year, dispose of investments standing at a loss that can be set against the gains. It might also be beneficial to dispose of further investments if gains will only be taxed at the basic rate of 10%.

IHT exemptions: Gifts of up to £3,000 a year are exempt. If you have not used the exemption for 2015/16, you can make IHT-free gifts of up to £6,000 before 6 April 2017. Small gifts of up to £250 per person in each tax year are also exempt from IHT.
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In this edition

This newsletter is for general information only and is not intended to be advice to any specific person. You are recommended to seek competent professional advice before taking or refraining from taking any action on the basis of the contents of this publication. The newsletter represents our understanding of law and HM Revenue & Customs practice as at 3 January 2017.