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End of year tax planning

21st February 2017

End of year tax planning

Back in the mists of time an astute politician, Jean-Baptiste Colbert the Finance Minister to Louis XIV observed that “the art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with smallest possible amount of hissing”. It is worth keeping these comments in mind as we approach the end of the tax year and make sure that you plan efficiently and sensibly.

Income Tax
Make sure you utilise your various allowances effectively. This means applying your personal, dividend and personal savings allowances in the most effective way possible. This may mean you reviewing your investments to consider who holds what and how they are held. It makes sense that assets are held in the right place by the right person!

Capital Gains Tax (CGT)
With the FTSE-100 trading (at the time of writing) at a historic high, the issue of CGT is no longer an academic musing found in tax exams. By using your CGT annual exemption (£11,100) on a regular basis you can make sure that investment gains are not stored up leaving you with a larger tax bill when your investment is eventually realised. Regular re-balancing of a portfolio and careful management of your CGT position can offer significant tax advantages.

Inheritance Tax (IHT)
Use your statutory exemptions and allowances.

Annual exemption
Each year you can give away £3,000 free of IHT. If you do not use all of the exemption this year, you can carry forward the unused element to the tax year 2017/18.

Small Gifts Exemption
You can give £250 outright per tax year free from IHT to as many people as you wish.

Normal Expenditure Exemption
A little more involved but any gift is exempt where you can make it out of income, on a regular basis without detriment to your standard of living. Importantly, there is no limit to the value of this exemption.

With higher and/or additional rate relief on personal contributions to pension plans potentially under threat a review of your pension contributions is a clear priority. The tax rules are complicated particularly for higher earners but pension plans remain very tax efficient. We know that tax planning can be a complicated and challenging area, however it is possible to take simple and effective steps but professional advice should always be sought to avoid the many bear traps and to capitalise on the opportunities available to you.


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