Philip Hammond’s first – and last – spring Budget on Wednesday 8 March could make early tax year end planning all the more important in 2017.
The one major surprise in Mr Hammond’s Autumn Statement last November was that he would be reverting to autumn Budgets, last seen under Ken Clarke in the 1990s. So the 2017 spring Budget will be the last of its type and it will be the first of two Budgets this year. It will be Mr Hammond’s first Budget set piece and, in the light of the government’s finances, it looks unlikely to offer many giveaways. As ever, your year end tax planning is best completed before the Chancellor reaches the despatch box.
The 2016/17 tax year end checklist starts with pensions, but there are several other areas which also need examination.
In a paper published alongside the 2016 Autumn Statement, the Treasury noted that “The cost of tax and National Insurance contributions relief on pension savings is one of the most expensive sets of relief offered by the government. In 2014 to 2015 this cost around £48 billion, with around two thirds of the tax relief going to higher and additional rate taxpayers.” The Treasury paper then remarked “…it is important that resources focus where there is most need.”
Mr Hammond’s predecessor came close to ending higher (and additional) rate tax relief on pension contributions in 2016. Given that £48bn cost and the Treasury’s need for additional tax income, Mr Hammond may be tempted to venture where Mr Osborne held back.
Individual Savings Accounts (ISAs)
The current ISA contribution limit is £15,240, which will rise to £20,000 in 2017/18. Maximising your ISA contributions remains important if you are a higher or additional rate taxpayer or pay capital gains tax (CGT), even though this tax year’s savings and dividend tax changes may have cut some of your investment tax bill:
- All income within ISAs is free of personal UK tax and does not count towards to the dividend allowance or personal savings allowances.
- An ISA and all its tax benefits can effectively be inherited by a surviving spouse or civil partner.
- Gains made within ISAs are free of CGT.
- There is nothing to enter on your tax return.
CGT annual exemption
UK investors saw some useful gains in many of the major stock markets in 2016, partly because of Sterling’s post-referendum fall. If you have profits from your investments, as a broad rule you should consider whether it’s worth realising some of your gains to use your annual CGT exemption. In 2016/17 you can realise gains of up to £11,100 without any liability to tax – a potential tax saving of up to £2,220 (£3,108 for residential property which doesn’t benefit from another tax relief such as principle private residence relief). Crystallising gains could provide you with cash to make a pension or ISA contribution.
Inheritance tax (IHT)
The main IHT nil rate band of £325,000 has been frozen since 6 April 2009 and will remain so until April 2021 – making it all the more important that you use your annual inheritance tax exemptions. These include the £3,000 annual exemption, both for 2016/17 and any unused amount from 2015/16, and also the often forgotten normal expenditure out of income exemption. The tax year end is also a sensible time to review the impact on your estate planning of the main residence nil rate band, which starts life at a maximum of £100,000 in 2017/18.
Get in touch with us if you have any questions on this new relief or any of the areas covered in this blog.
The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice.