Chartered Financial Planner Andrew Gilmore – FPFS, Cert CII (MP&ER) joined Active in 2007. In 2016 (with hard work & dedication), Andrew became Chartered and (shortly after) gained Fellowship status; the highest level of qualification offered in our industry. As a Chartered Financial Planner, Andrew is particularly known for dealing with investments and pensions, but also specialises in providing long term care to his clients. Andrew also leads Active’s Paraplanning team which involves researching products & reporting back to Active’s team of Financial Advisers.
Use ISA allowances – Don’t forget the basics!
Most people are aware that they have an ISA allowance but not everyone is aware that if you don’t use it you lose it! The current ISA allowance is £15,240 for the 2016/17 tax year and this can be saved into either a Cash ISA, Stocks & Shares ISA or a combination of the two! Please note Stocks & Shares ISAs do not include the same security of capital which is afforded with Cash ISAs. If you are going to save into a Stock & Share ISA make sure you seek financial advice to ensure you understand the risks as investments will rise and fall!
The New Lifetime ISA
As of next tax year 6th April 2017 you will not only have a new ISA allowance of £20,000 for the 2017/18 tax year, but also a new ISA ‘The Lifetime ISA’. The new Lifetime ISA will be within your overall £20,000 ISA limit for the 2017/18 tax year along with all payments into Cash ISA, Stocks & Shares ISA and the new Innovative ISA. Please note you are only able to contribute to one Cash ISA and one Stocks & Shares ISA in any one tax year. The rules (although not yet finalised) for the Lifetime ISA are that you have to be aged 18 – 40 and should be saving for either a house purchase or retirement. If this is you then the allowance is £4,000, and you will receive a 25% bonus from the government, meaning that if you contribute the full allowance of £4,000 you will have £1,000 (bonus) added to your savings. The bonus is paid until you turn 50; If you are using the funds for retirement you are unable to access these until your 60th birthday.
The savings should be for retirement or a house purchase and if you withdraw funds for another purpose, you will lose 25% of your contribution (the bonus will be taken away). The rules are complicated, you should consider whether this is more suitable (for you) than the alternatives e.g. the current ISA or Pensions.
Use your Pension Allowance
Are you aware that you also have an allowance with Pensions? You are able to pay up to £40,000 (gross) each tax year (subject to having earnings of at least £40,000). If you have no earnings, you are still able to pay up to £3,600 (gross). Your employer can also pay into a pension on your behalf but your tax relief will work differently. A pension can be a tax efficient way to save for retirement.
Inheritance Tax Gifting Allowances
You have an allowance called the ‘nil rate band’ which is the amount you are able to leave behind to your estate (when you pass away) without paying inheritance tax. This is currently £325,000, but if you are married you may be able to inherit a deceased spouse/partner’s nil rate band and effectively double the allowance to £650,000. If your estate (after taking away liabilities) exceeds your nil rate band, you will normally be taxed at 40%. However, (as with ISAs and Pensions) you do have annual gifting allowances available such as the annual exemption of £3,000 (with this you are also able to go back one year if the previous years’ allowance wasn’t used and gift £6,000). The benefit of doing this is you will reduce the size of your estate and therefore the tax bill. If you do not use your allowances and make gifts, these can potentially remain inside your estate for another 7 years, or if you make large gifts you may even suffer an immediate tax charge! There are other allowances available, including gifts on marriage.
Capital gains tax allowance currently stands at £11,100 per tax year. In the April 2016 budget, the basic rate of capital gains tax reduced to 10% (from 18%) and the higher rate to 20% (from 28%). The previous higher rates can still apply in certain situations such as the sale of residential property (not your main residence). You then only pay tax on the excess over your allowance and there are some gains which are tax free such as selling your main residence, or your car.
If you are looking to make a large disposal from an investment which would be subject to capital gains tax near to the end of the tax year, you may be able to make a partial withdrawal in both the current tax year and the next to make use of both (tax year) allowances and to minimise any tax that would be payable.
For help & advice with this or any of your financial planning needs call Active on 01642 765957 or click here to email Andrew Gilmore.
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The content of this blog is for information only and must not be considered as financial advice. We always recommend that you seek independent financial advice before making any financial decisions.
Levels, bases of and reliefs from taxation may be subject to change.
The Financial Conduct Authority does not regulate taxation advice. Active recommends you speak to a Tax Adviser/Accountant for this; Active would be happy to introduce you to one of our close partners.