Four tips for end of year tax planning
8 Feb 17
As the UK approaches the end of another tax year, Tony Müdd, divisional director for development and technical consultancy at St James’s Place, talks through how to make the most of all the allowances and exemptions available.
“This could also be a particularly good year to maximise pension contributions,” says Müdd.
“In the Autumn Statement the chancellor, Philip Hammond highlighted the annual £48bn cost of pension tax relief, sparking renewed concerns that he may soon be tempted by the savings to be achieved from a cut in the benefits for higher rate taxpayers.
“Maximise what you can do on pensions now because the current regime may not last. I expect the Treasury to cut back on upfront pension reliefs for higher earners. The introduction of the Lifetime Isa from April also hints at a different approach to tax incentives on savings.
“Pension tax relief has been limited through recent law changes but it is still worth making the most of the current annual allowance of £40,000 (or 100% of earnings if that is lower), although there are restrictions for additional rate taxpayers.
“There is an overall limit of £1m which can be accumulated in a pension pot over a lifetime without triggering an extra tax charge. Even those who have little or no annual earnings receive an allowance of £2,880 a year, which will be increased to £3,600 by basic rate tax relief. This can be a useful way to save for children and non-earning partners.
“Pension pots can also, in most cases, be passed on completely tax-free when someone dies before the age of 75. For deaths over that age, income taken from the pension fund will be taxed at the recipient’s marginal tax rate.
“However, whatever the age of death, their pension is generally not part of the estate for IHT purposes, nor is it subject to capital gains tax (CGT). It’s an incredibly efficient way of passing on your wealth, if you can afford not to touch it.”
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