Tax hikes and closing loopholes are firmly on the government’s agenda.
But those who have been hoping for an idea of how the government can raise tax revenue may have been deeply disappointed by Boris Johnson’s address at the 2021 Conservative Party convention.
Instead, Boris focused on bigger-picture ideas and a future commitment to ‘level up’ across Britain.
Tax relief on pension contributions could give real boost to future income
However, and rather frankly, the prime minister has recently refused to rule out further tax increases in the future.
with this in mind, Angela Lloyd-Read, The financial planner at 7IM looks at seven tax perks now available that savers should take advantage of for as long as they still can.
1. Personal Savings Accounts
Make sure you use up your annual personal savings account allowance of £20,000 each tax year, otherwise it will be lost forever.
ISAs allow you to earn interest and dividends tax-free, and with no capital gains or income tax on withdrawals. When used strategically with pension income, ISAs can help provide greater flexibility and higher net income in retirement.
2. Pension Contribution
Tax relief on pension contributions can give a real boost to future income. While taxpayers benefit the most, with higher allowances and higher tax relief for pension payments, non-taxpayers can also benefit greatly from contributing to pensions, achieving a 20 percent increase to £3,600 a year. can.
If you have been unable to make full use of your contribution allowance in the past three tax years, you should be able to take advantage of making a larger contribution in the current tax year, if you are eligible to do so.
Making a larger contribution in anticipation of an impending retirement can also boost available tax-free cash.
Angela Lloyd-Reid, 7IM . financial planner at
3. Salary Sacrifice and Bonus Sacrifice
If your employer allows you to make pension contributions through wage sacrifice, you can benefit from immediate tax relief and National Insurance Savings on these contributions.
Your employer may also offer some Employer National Insurance Savings.
Sacrificing a bonus to your pension also benefits from tax and National Insurance savings, but you may need to know the size of the bonus before you decide to sacrifice the bonus!
4. Capital Gains Tax and Gifts to Your Spouse or Civil Partner
The capital gains tax (CGT) allowance for this tax year is £12,300 per person. If you have unwritten assets outside pension or ISA, it may be useful to use the annual CGT allowance to avoid accumulating higher tax liabilities in future.
Transferring assets to a spouse or civil partner, exempt from CGT, allows them to use their allowance as well, effectively doubling the household CGT allowance for the year.
If the recipient pays tax at a lower rate than the person making the transfer, any gain on the allowance may also attract less tax.
5. Giving Gifts Out of Extra Income
Gifts given during a person’s lifetime can be added back to an estate and possibly subject to inheritance tax (IHT) if they are given less than seven years before death.
Gifts of up to £250 per person are likely to be exempt, such as gifts for weddings or civil partnerships within the prescribed limit, i.e. £5,000 to a child or £2,500 to a grandchild.
But using the ‘gifting out of additional income’ rule can also lead to large gifts that are unlikely to be subject to IHT.
Cash Gifts: Gifts up to £250 per person are likely to be exempt from IHT, as will gifts for weddings or civil partnerships within the prescribed limits – £5,000 to a child or £2,500 to a grandchild
Grandparents, for example, may want to use additional pension income to pay school fees, or pay for an annual family leave. An aunt or uncle may wish to provide for university fees or maintenance.
Planning is important when setting up such an arrangement, but it can be a very useful way to transfer money to other family members who might otherwise run the risk of being subject to IHT.
6. Venture Capital Trusts
If you have maxed out your pension contributions, fully subscribed to your ISA, and it is appropriate for you to invest some of your assets in a high-risk strategy, investing in Venture Capital Trusts (VCTs) is an immediate and Can provide long-term tax benefits. .
VCTs invest in innovative smaller companies, usually in the earlier stages of company growth, and offer tax-relief of 30 percent of the investment on the first £200,000 per year.
Investments need to be held for at least five years to retain the tax relief, but dividends and capital gains on this investment are also tax-free.
It is important to note that VCTs carry a high level of risk, so I urge you to consult with a financial advisor/planner to see if they are the most suitable option for you.
Boris Johnson recently refused to rule out further tax increases in the future
7. Onshore Investment Bonds
UK investment bonds are taxed differently than other UK-based investments, allowing investors to take advantage of some useful tax planning opportunities.
The principal rate on any bond gains no future liability for income tax or CGT, the higher rate provides taxpayers with an opportunity to invest while paying higher rates of tax, and while they may be subject to lower rates of tax. If so, maybe you can withdraw in retirement.
If withdrawal is required before the tax deduction is applied, 5 percent of the amount invested can be withdrawn without immediate liability for additional tax, and carried forward to unused allowances.
The key to maximizing tax potential is in the details and planning.
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