by David Watkinson www.watkinsonblack.co.uk
As we approach the end of another tax year it is time to look again at some of the valuable exemptions available to you before the end of the tax year.
The following annual gifts immediately reduce your estate for Inheritance Tax purposes:
1. Total gifts up to £3,000 in each tax year. Any unused gift allowance from the immediately preceding year can be used, but only in addition to the current year’s allowance. Any gift taking the value of gifts in the tax year to above £3,000, and all subsequent gifts, are taxable.
2. Wedding gifts to your own child of £5,000 or less, to a grandchild or great grandchild of £2,000 or less, or £1,000 or less to anyone else.
3. Gifts totalling under £250 to any person unless that person has received other gifts in the same year. This cannot be used to reduce tax on a larger gift, so a gift of £251 is wholly taxable.
4. Gifts to help with the living costs of an ex-spouse, an elderly relative or a child under 18 or in full time education
5. Normal gifts from surplus income, such as Christmas and Birthday presents, or a regular gift.
Capital Gains Tax
The first £11,100 of net Capital Gain, after deducting losses, in any tax year is exempt. It may be worth considering selling an asset to realise a gain. There are anti-avoidance provisions to prevent “bed & breakfasting”.
The annual amount that you can put into a pension fund is restricted to the lower of the amount you earn in the tax year and £40,000. Tax relief will increase any investment within these limits by 25%. Pension contributions can be particularly valuable where income is just above £50,000 or £100,000 as they can prevent child benefit or personal allowances being withdrawn. Contributions of £2,880 can be made by anyone, even children with no income, and the government will increase that to £3,600.
Transfer of Personal Allowances
If you pay tax at 20% and your spouse or partner earns less than the personal allowance of £11,000 then they can transfer 10% of that allowance to you. To do so they must go online to the HMRC website and have both their own and you National Insurance number and be able to answer a number of security questions. In the current year, this is worth an additional net income of £220.
WatkinsonBlack are pleased to advise on these and other matters. They have considerable experience in all areas of taxation and businesss services, including providing a very cost-effective payroll bureau service. If you want to arrange a no-obligation initial meeting on any taxation or accounting matter then please contact us. Please note that these ideas are intended to inform rather than advise and you should always obtain professional advice before taking any action.