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Village Finance
Prepare to save tax T
his time of year is, for many, the last chance to ensure that we take advantage of planning op-
portunities that can save significant tax, but that will be lost if ignored.
Dividend Income For those with dividend income, the change to tax on dividends is key. Previously, dividends included a 10% tax credit which covered any basic rate tax liability. This has now changed.
Dividends no longer carry a 10%
tax credit, although the underlying company continues to pay Corpora- tion Tax on their profits. The first £5,000 of dividends are exempt from Income Tax. However, any excess will be taxed at your marginal rate. For basic rate taxpayers the rate is 7.5%, for higher-rate taxpayers 32.5% and for highest-rate tax payers 38.1%. You need to calculate the total divi-
dends you have accrued. Remember, holding accumulation units in an investment may still create a dividend liability to account for. Remember also that Fixed Interest investments in Gilts or Corporate Bond funds pay interest and should not form a part of this calculation. If your total dividend income is less than £5,000, then there is no tax to pay. However, if you have dividend in- come in excess of this, then you may wish to consider whether you can get your dividend paying assets into an Individual Savings Account (NISA) or a pension scheme, keeping growth assets outside. Alternatively, if you are married or in a civil partnership you could consider transferring assets to your spouse/partner if they have not already utilised their dividend allowance.
Bank and building society deposits When it comes to bank and building society deposits, you should check the interest payable on them. If you have a spouse or partner who pays a lower rate of tax, then it may be worth considering transferring the assets to them such that any liability is reduced.
Austin Broad suggests we make future plans as the tax year ends.
NISAs and Junior ISAs Utilising your Individual Savings Account (NISA) allowance, where pos- sible, is fundamental. Until 5th April 2017 you can invest up to £15,240 into cash, stocks and shares, or a com- bination of both within a qualifying ISA and all future income paid will be tax-free and there is no liability to Capital Gains Tax. For those with children or grand-
children under 18, Junior ISA allows an amount of up to £4,080 to be invested on their behalf. Returns are treated as above, but you must remember that the funds will belong to the child and while they cannot be accessed until they are 18, at that time the funds are legally theirs.
Pensions Tax relief at your highest marginal rate is still available on pension contributions and, when considered alongside the revised flexible pension rules, is arguably the most tax-effi- cient and desirable investment avail- able. Personal pension contributions can be used as a means of reducing taxable income and this can help in both reducing Income Tax and ensur- ing eligibility to Child Allowance. It is also possible to carry forward unused relief from previous tax years for those looking to make up for lost time. There are complex rules that need to be considered if this is appro- priate, but in many cases, this can be an exercise worth doing where you have relevant earnings and available funds for investment. Remember that a pension is simply
a tax wrapper and as benefits can cur- rently be accessed from age 55, the decision does not even have to be a long-term one. Once in the wrapper, you are responsible for where the
funds are invested and the risk you wish to take, which can be anything from simple cash deposit investments to emerging market debt.
Capital Gains Every individual has an annual ex- emption to Capital Gains (£11,100 for 2016/17) but if you do not use it, you lose it. Where you have accrued gains that are potentially subject to Capital Gains Tax, it is worth considering if it is possible to use some or all of this valuable exemption before 6th April.
Inheritance Tax Finally, for those looking to reduce the potential Inheritance Tax on their death, ensuring the use of annual gift exemptions is worthwhile. You can make a gift of up to £3,000 per annum to anyone, which would im- mediately fall outside your estate in the event of your death. In addition, you can make gifts of
up to £250 to as many people as you wish with the same treatment. There are some other exemptions on the marriage of a child or grandchild, which could be considered depend- ent on circumstances. There is a lot to think about and this summary is only the tip of the iceberg. If you need advice, speak to an Independent Financial Adviser who can not only help in the run-up to this tax year end, but can also put a plan in place so that in future years this process is far less stressful.
If you would like to discuss any of
the topics within this article, or would like to talk to one of our IFAs, please do not hesitate to contact us: Tel: 01527 577775
Email:
mail@afhgroup.com Website:
www.afhwm.co.uk
AFH Wealth Management is a
trading style of AFH Independent Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority.
This article is for generic
information only and should not be construed as advice. Please contact
us before proceeding with any course of action.
The Village February 2017 41
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