- Savings and investments
Individual Savings Accounts or ISAs. As the title states, they are only applicable to individuals and not businesses. The Cash ISA or Stocks and Shares ISA has a current maximum £15240 p.a. limit for the 2015/2016 tax year. There is no tax to pay on either the Income or Growth of ISAs. Stocks and shares ISAs provide long term savings plans. Stocks and Shares ISAs should be undertaken for five years, or if stopped earlier then the balance should be left for the remaining period to obtain the best chance for growth. The cheapest funds are usually trackers which tend to outperform most “managed funds”.
- Income Tax
Personal Allowance trap. As is well known, there is a nasty tax trap by reference to the gradual withdrawal of the personal allowance when taxable income is between £100,000 and £120,000. This is via a reduction of £1 of allowance for every £2 of excess taxable income. The effective tax rate in this band is 60%.
If possible, structure your income so it falls less than £100k. If more than £100k consider a lump sum pension
Pensions are still very tax efficient and provide tax relief when contributions are made. Start now before it is too late – Auto enrolment starts soon so if you have any questions don’t hesitate to ask Ellis & Co.
- New starting rate for savings
In 2015/2016 there is a new 0% starting tax rate for savings interest which applies to the first £5,000 of an individual’s savings income in respect of income received from bank and building society deposit accounts, not to be confused with the new proposals for the taxation of dividends. The starting rate only applies to recipients of interest whose main savings income does not exceed their personal allowance and £5,000. In many cases this will be elderly people with modest pensions and a small amount of interest but could equally apply to married couples where one spouse has a relatively low income.
- Will – inheritance tax
If a person dies intestate, that is without making a will, the law divides the estate in a particular way, according to the number of people who survived the deceased person and the value of the deceased person’s estate. It is important to ensure that you make a valid will, clearly setting out who is to receive what and whether any conditions are to apply. In this way those that are left behind are provided for in a sensible, practical and acceptable way. Please bear in mind that wills need to be regularly reviewed to ensure they remain appropriate. For example, the effect of marriage, separation, divorce or changes in the legislation need to be taken into account.
- Capital Gains
Where individuals hold assets in which there are substantial Capital Gains it is important to make maximum use of the annual allowance of £11,100 for the 2015-2016 tax year. If the asset is owned by one party to a marriage, consideration should be given as to whether it is beneficial to transfer an interest in that asset to the other party and make use of two sets of annual allowances. In this way, the first £22,200 of any gain will be exempt from Capital Gains Tax. For individuals, Capital Gains remaining after the deduction of annual exemption will be taxed at a flat rate of either 18% or 28% depending on their personal tax position.