The first quarter of the year is a time when advisors should be getting together with clients to discuss their tax planning issues. It’s inevitable that the run-up to April is always the busiest time of year for advisers and so they should be making contact in order to plan meetings with their clients. The earlier, the better.
Prioritise Tax Planning
There are numerous issues that need to be discussed and any initial tax planning should consider your basic allowances. This should take priority over other issues because your adviser needs to make sure you have taken full advantage of your tax allowances – Capital Gains, ISAs, etc
Capital Gains Allowance
You are entitled to an annual tax-free capital gains allowance of £11,100 in 2016-17. For gains that are in excess of the allowance, your tax rate depends on the level of your income and so your adviser should be familiar with the bandings.
Part of the tax planning process is to ensure you have taken advantage of your annual ISA allowance. This year, the allowance is £15,240. This time of year is traditionally a busy time for people to invest money into their ISAs and so you should be consulting with your adviser to determine the most suitable type of ISA. The sort of issues you should be considering are: stocks & shares or cash; short-term or long-term objectives; how risky are you prepared to be, etc
This year, there is an added issue when considering your ISA investment: the launch of the new Lifetime ISA which occurs at the beginning of the new tax year.
The purpose of the Lifetime ISA is to allow people to save for a property deposit which attracts tax relief, as well as save for a pension.
This time of year is also important for pension planning because your adviser should be thinking about your annual allowance – which is currently £40,000. Your adviser should be making sure you have used all your annual allowance, if you are able to afford it. And they should also be making sure you have not exceeded your annual allowance too.
Pension Carry Forward
Where there are issues with under-payment or over-payment of your annual allowance, your adviser should be discussing carrying forward any of you unused allowance from previous years.
With effect from April, the government is introducing a tapered allowance which affects people with salaries over £110,000. Their pension annual allowance will fall from £40,000 to £10,000 according to their level of income – but the definition of income is complex and so your adviser should make sure they’re familiar with the new rules.