Tax planning and allowances for 2015-16 tax year

When it comes to tax planning and managing your finances, the two are inexplicably linked.  Therefore by understanding what allowances you have each year and knowing how to use them is invaluable when planning your finances.

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Here are a few of the headlines for this year:

Buying a new home or second property:

Stamp duty is O% on purchase up to £125K and over on properties over £1m, this rises to 12%.  This is a significant cost that should be planned for when budgeting your next property move.

Tax rates

Personal allowance has increased to £10,600.  This means that the first £10,600 of earned income is not taxed.  Above this you are taxed at 20%.

On earnings over £42,386, you will be taxed at 40%.  On earnings above £150K the rate rises to 45%.

Have you considered making pension payments to reduce your income and therefore reduce the income tax you will pay?

You can pay up to £40K into a pension this year and receive full tax relief on the contribution.  If you have not made contributions in the past four years then you can make a £180K contribution this tax year and get full tax relief on the contribution.   The amount you can have in all pension benefits is now capped at £1.25m (lifetime allowance).  This may seem a lot, but most medical practitioners, lawyers and high earners should calculate what they are likely to get in retirement and select an option to protect their allowance and like tax charges you will have.

Inheritance tax upon your death.  This is unchanged in this year’s budget at £325K per person, or £650 for a married or civil partnership couple.  Is your home and savings over £325K or likely to be in the next ten years?  If so, you should consider some planning to mitigate this cost for your beneficiaries.  This is one of the easiest taxes to plan for, but timing is key to a successful outcome.

Capital Gains Tax limits have risen to £11,100.  This tax is payable on gains which you make in this tax year, however there are reliefs you can use as well as using previous years and also your spouse benefits if you are married.   

Savings and ISA’s

ISA limits have increased to £15,240 for this year and child’s ISA have grown to £4,080.  A great way to get tax free income in retirement alongside your pension savings, plus potentially reducing your IHT tax bill by gifting into a child’s ISA for their later life (Education fees for example). 

For all your planning needs, contact our team for friendly, indecent advice.

Download the tax card here.

 

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