London based Seven Investment Management (7IM) has highlighted five often overlooked ways that investors can make the most of tax efficient saving and investing in general.
With the tax self-assessment deadline having past on 31 January there are ways to make the most of tax allowances and make filing a tax return easier next year, according to Michael Martin, a relationship manager, 7IM.
“Self-assessment has to be one of the all-time most tedious pieces of life laundry – even the well intentioned of us (like me) can end up filing their return at the eleventh hour,” he said.
Mr Martin advised that “if you want to halve the pain next year, with less to declare, let alone less to needlessly hand over, there are some options, none of which will in any way upset HMRC” and which “might be able to make the most of tax allowances. And since everyone’s circumstances are different, and if there is any doubt, it is well worth seeking tax advice.”
1. Capital Gains Tax (CGT) and income tax allowance – the Cinderellas of tax planning?
7IM said the capital gains tax and income tax allowances are the ‘Cinderellas’ of tax planning. Whereas ISA wrappers come with ‘ribbons and bows’ (a strong brand, in other words), the firm advised that there is no equivalent for capital gains and income tax allowances.
This, Mr Martin said, is probably why 7IM finds around 80 percent of new clients are not taking advantage of these important allowances. Crystallising gains annually in a tax efficient way can help mitigate a future tax bill, but it requires discipline and process, and it may be necessary to take advice.
“But if you are utilising your ISA allowance each year, why not be even more tax efficient and think about utilising your CGT and income tax allowance? This year’s 2017-2018 capital gains tax allowance is £11,300 and the income tax personal allowance is £11,500.”
2. 16 and 17 year olds – the ISA ‘double whammy’
Mr Martin said: “It is usually the case that if something looks too good to be true, it probably is. But this isn’t the case with the ISA ‘double whammy’ for 16 and 17 year olds. Whether by luck or design, 16 and 17 year olds currently get two ISA allowances, because they can open an adult ISA from age 16 alongside their Junior ISA, although they can’t open a Junior ISA if they have a Child Trust Fund. That could mean putting aside up to £24,128 in your child’s name tax free in the 2017-2018 tax year.”
3. Dividend allowance – time to restructure?
Sophie Kilvert, a fellow relationship manager, 7IM said: “Because the dividend allowance is being reduced from 6 April to £2,000 from £5,000, it may mean that some investors might want to restructure their investments towards growth rather than income from a tax efficiency perspective, if investing outside of a tax wrapper.”
4. ISA Allowances – passing the strings, as well as the purse?
For couples, 7IM said it makes sense to fully utilise each other’s ISA allowance, particularly where one half of the couple has more financial resources than the other, producing combined tax free savings of £40,000 in the 2017-2018 tax year. It comes with a caveat, though – since ISAs cannot be in joint names, if you’re handing over a significant amount of money to your spouse’s ISA for tax efficiency purposes, remember that you are handing over the strings, as well as the purse.
5. Income tax allowance part II
If you are married or in a civil partnership and your spouse earns £11,500 or less, they can transfer up to £1,150 of their personal income tax allowance to you (if you earn between £11,501 and £45,000, or £43,000 if you’re in Scotland). This could reduce your tax bill by £230 in the 2017/18 tax year and you could even backdate the claims to 5 April 2015.
Founded in 2002, 7IM has assets under management of around £12 billion (more than doubling since 2013), and staff of 240 based in Bishopsgate in the City of London.
|RATE THIS ARTICLE|
THIS WEEK'S TOP STORIES
PAM (Private Asset Managers) and its sister website PAMonline combine to provide "...the best guide available to the leading firms in private client fund management" (FINANCIAL TIMES). PAM compares managers on a level playing field by key data such as fees and charges, minimum investment thresholds and so on.