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Three 'must-dos' as the tax year comes to an end.

AS we approach the end of the tax year, it pays to plan ahead.

Fortunately, there are lots of simple and effective ways to reduce tax bills and make your money go further. Here are three top tips to consider before the tax year is out.

| Maximise tax allowances When it comes to cutting your tax bill, one of the most effective ways is to make use of your tax-free allowances. The introduction of the personal savings allowance in 2016 granted basic-rate taxpayers PS1,000 of savings income tax-free each year. Higher-rate tax payers receive a PS500 annual allowance.

For those with investments or possessions to sell, the capital gains tax exemption is a tax benefit that often gets overlooked. Used effectively, it can help reduce your income tax bill. The annual exemption means capital gains of up to PS11,300 are firmly ringfenced from the taxman's coffers. Married couples and civil partners who own assets together, therefore, have PS22,600 of exemptions at their disposal.

For those in retirement, for example, who are drawing income and are close to hitting the next income tax bracket, it could be more tax efficient to cash in capital growth investments so they become subject to capital gains tax, rather than income tax.

| Take advantage of annual exemptions If your estate is likely to be hit with inheritance tax (IHT), then those planning to leave a legacy may want to make use of the annual gifting exemptions on offer.

IHT is charged at 40% on assets over the PS325,000 threshold (the family home can now benefit from the Residence Nil Rate Band, but that is complicated enough to warrant an article of its own). So, it can make good financial sense to reduce the value of your assets and there are a number of annual gifting exemptions that will immediately reduce your individual estate: gifts of PS3,000 a year, PS2,500 gift on marriage, plus PS1,000 of other marriage gifts, and small gifts of PS250 per person.

Higher amounts can be gifted but the donor has to live more than seven years before they will fall outside of the estate for tax purposes. The golden rule to remember is that gifts are nonretrievable - once money has been gifted, it's gone. So, it is important to make sure your own needs are going to be met, both now and in the future, before gifting, so that you don't find yourself losing out because you need the money at a later date. Also, money gifted must be unconditional - in other words, you'll have no control over how it's spent.

| Maximise tax benefits If you're going to make your money work harder, then saving into a pension is arguably the most tax-efficient method, as you will receive tax relief on your contributions equivalent to your marginal rate of tax.

Currently, taxpayers can pay up to their annual salary (capped at PS40,000) into a pension, and non-taxpayers PS3,600. You can also potentially carry forward unused allowances from the previous three years.

Pension saving makes even more sense for those whose employer contributes into the pension too, as their contribution will be invaluable in building your nest egg. Not contributing to a workplace pension is tantamount to a pay cut as in many instances, an employer will match their employees' contributions. And who could argue with extra money being paid into their pension pot? Thanks to the pension freedoms, using your pension to pass on wealth to your loved ones has also become a whole lot easier. The previous 55% 'death tax' has been scrapped in favour of greater flexibility. If you die before 75, your beneficiaries will not have to pay any tax on withdrawals from the pension. As of your 75th birthday, pension assets become potentially liable for tax, but this is set at the marginal rate of income tax of the beneficiary.

This means beneficiaries can use your pension, or remaining pension pot, as a drawdown account or have it potentially pass down to the next generation(s). If your pension doesn't allow this, transferring to a pension scheme that does could be the answer. Pension contributions not only benefit from tax relief but funds grow tax free and can be passed on to beneficiaries on death tax efficiently. The key is to plan to make use of the tax allowances and exemptions available to you each year, because if you don't use them, you lose them.

| Don't leave your end of tax planning until the last minute. Consider taking advantage of next year's allowances at the beginning, rather than the end of the tax year. To arrange a free, initial consultation to see how Lowes can structure your finances and make the most of the available tax allowances, contact our office on 0191 281 8811.

| Ian Lowes, managing director, Lowes Financial Management, Fernwood House, Clayton Road, Jesmond, Newcastle NE2 1TL. Authorised and regulated by the Financial Conduct Authority. Tel: 0191 281 8811

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Taxpayers can pay up to PS40,000 from their salary into a pension Nick Ansell/PA
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Title Annotation:Features
Publication:The Journal (Newcastle, England)
Date:Feb 24, 2018
Words:851
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