Tue 10 May 2016
Colin Gibson, senior wealth advisory manager, Grant Thornton
TAX AND WEALTH PLANNING – SAVE MONEY AND KEEP OUT OF THE PRESS
By Colin Gibson, senior wealth advisory manager, Grant Thornton
The last few Budgets have fundamentally changed the UK's tax and investment landscape.
Measures introduced have undoubtedly brought complications but also opportunity. The media's current focus on the morality of some tax arrangements should be clearly separated from sensible financial planning.
Through some simple - and legitimate - planning, it is possible to organise your affairs in a tax efficient manner.
For individuals, the tax system has become extremely complicated and personalised, but offers significant opportunity. Whether planning for retirement or already in retirement, it is now possible for a couple to benefit from tax allowances worth over £66,000 a year.
Key to efficient planning is using all available allowances and reliefs, as well as holding the right assets, in the right place and, for a couple, in the right name. This straightforward planning can, over time, save significant amounts of tax.
Unusually for a Budget there were no further changes to pensions announced in March and the anticipated removal of tax relief did not happen. Pensions still remain, for the majority, the most tax efficient way of saving for retirement. The use of salary sacrifice schemes and ability to recover child benefit or personal income tax allowances can provide additional tax relief of 60% or more.
For high earners, pension allowances have been cut and anyone with a total income of £210,000 or more is potentially restricted to annual contributions of £10,000. The ability to carry forward unused allowances from previous years is still available but this is complex to calculate and advice should be sought so as not to inadvertently exceed the limit.
One big change that came into force in April was to dividends, with all dividends now paid gross of tax. This has led to an increase in the rate of tax at each tax band, although tempered somewhat by a £5,000 dividend allowance. The breakeven point is fairly low and those that will feel the impact most are directors or significant shareholders of companies.
A new Personal Savings Allowance has also been introduced – although not for those on a high income - with interest such as that paid by bank accounts now being paid gross. For many, there will be no difference in taxation between holding money in a cash ISA or bank account.
Exceeding these allowances will require completion of a self-assessment tax return.
For younger savers up to 40, there will be a Lifetime ISA, with government paying a £1 bonus for every £4 saved, up to £4,000, subject to certain conditions. These form part of an individual's ISA allowance, which is also increasing to £20,000 from April 2017.
That's not to mention the surprise reduction to capital gains tax or the Government's curbs on residential property investment, including stamp duty surcharges, higher capital gains tax rates and reduction in income tax reliefs, all designed to reduce enthusiasm for investing in bricks and mortar.
So yes, the tax and investment environment does require some careful navigation but also presents significant opportunities, making sensible advice more important and valuable than ever.
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