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What to do before April 2018: your essential six point checklist

Sagar Morjaria, Wealth Adviser at Canaccord Genuity Wealth Management, breaks down your six point checklist on what you should be doing now to make sure that you are well prepared for the new tax year:

 

Use your ISA allowance

An ISA offers a simple, tax efficient way to invest or save. This helps to maximise your funds whilst still giving you the flexibility to access your money tax-free when you need it. If you do not use your allowance before midnight on 5 April 2018, this allowance is lost forever and cannot be reclaimed.

This tax year you can invest up to £20,000 in ISAs. You can also invest up to £4,128 per child in a Junior ISA.

If you do not want to invest cash you can always look to ‘ISA protect’ investments you currently hold with these allowances.

 

Check if you could contribute more to your pension

Pensions are an invaluable way to fund your retirement and can be an effective way to leave a legacy for your children and beneficiaries.

To give you an idea of the scale of these benefits, you can currently receive up to 45% tax relief on money going into a pension. Your pension can also pass free of inheritance tax (IHT) to your beneficiaries.

All these benefits come with restrictions on how much money you can put in - and the end of the tax year is a crucial time to see if you could contribute more.

A key thing to check here is what your earnings have been over the tax year; if you are self-employed, this could be even more critical. The general rule is that you can contribute as much as you earn to a pension in each tax year – and receive tax relief – subject to the annual allowance (£40,000 for most people) and the lifetime allowance (currently £1 million).

Naturally, if your earned income is expected to decline or stop in future tax years, or if you are worried about future tax rule changes, then you might want to consider contributing more to your pension now and using your allowances. Not to mention, once the money is within the pension it grows free of income tax, capital gains tax and dividend tax.

It is worth bearing in mind that you can currently access your pension from age 55 and usually up to 25% can be taken completely tax free, but you may have to pay income tax on any withdrawals after that.

 

‘Wash away’ capital gains

Individuals in the UK can realise £11,300 of gains before 6 April 2018 completely free of capital gains tax (CGT). You cannot carry this allowance forward so where possible it should be used by realising gains.

Rates of capital gains tax on assets, other than residential property, can be up to 20% on the gain if you’re a higher rate tax payer – so ‘washing away’ the gain could significantly reduce the tax liable when you need to call on your funds.

 

Think of your beneficiaries by mitigating inheritance tax (IHT)

IHT can be charged at 40% on anything above the £325,000 threshold when you die, although there could be exemptions if you qualify for the ‘residence nil rate band’ or decide to leave money to charity.

Planning sooner rather than later in this area is therefore vital if you want to maximise the amount that your beneficiaries receive. A very simple and effective way to start doing this is by using your ‘annual exemption’ of £3,000, which you can gift each tax year without any IHT implications. You can only carry forward any unused exemption for one year so acting on this before the end of the tax year is key.

 

Seek further tax efficiency

For those investors who have a high tolerance to investment risk, there are attractive income tax breaks afforded to those who invest in Venture Capital Trusts (VCTs) and income, capital gains and inheritance tax breaks for investing in Enterprise Investment Schemes (EISs). These are investments in small and start-up businesses so are high risk.

Timing these investments against the tax you pay is prudent and there are limits to how much you can invest in a tax year. Canaccord Genuity Wealth Management are able to provide specific advice in this area.

 

Speak to a financial adviser

A financial adviser is in a unique position to ensure that you are well placed to achieve your life goals and put a tailored plan in place. Where appropriate they can look to use your valuable allowances before the end of the tax year and could also open the door for you to tax efficient options such as VCTs and EISs. What is more, your initial review is completely free of cost and we will only suggest advice if we think you will benefit financially.

Contact us today on 020 7523 4600 or email us on CGWM_UK@canaccord.com for a free and independent consultation.


The tax treatments set out in this communication are based on our current understanding of UK legislation. It is a broad summary and cannot cover every circumstance and it does not constitute advice.

The tax treatment of all investments depends upon individual circumstances and the levels and basis of taxation may change in the future. Investors should discuss their financial arrangements with their own tax adviser before investing.

Investments in VCTs and EISs should be regarded as high risk as they invest in small companies with shares that are highly illiquid and can be difficult to sell. Both are long-term investments and are only suitable for UK resident taxpayers who can tolerate higher risk. They attract tax reliefs provided the underlying managers keep to certain rules.

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Photo of David Goodfellow

David Goodfellow

Head of Wealth Planning

David specialises in financial planning and tax driven investment planning. He has over 15 years experience in advising on and investing in VCTs, EISs and tax driven property structures, and is part of the CGWM Advice and Solutions Committee He is a member of the Personal Finance Society and The Chartered Insurance Institute.


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IMPORTANT: Investment involves risk. The value of investments and the income from them can go down as well as up and you may not get back the amount originally invested. Past performance is not a reliable indicator of future performance.

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