“Planning” is the process of deciding in detail how to do something before you actually start to do it – it’s sensible and it fits a calendar! It’s what we do!
Failing to plan where financial planning is possible, is the process of witnessing opportunities disappear through the perforations of our financial life – it can be costly and it fits a colander! That is not what we do!
It’s about four months to the end of the tax year. Four months to review your capital and income planning before tax-saving and investment opportunities fall through the holes that are intrinsic to the colander.
But first and foremost, we need to check our liquidity against our income and capital needs over the short, medium, and longer term.
Having done that, in the context of our financial planning needs, we should check if there are any prudent Income Tax or Capital Gains Tax or Inheritance Tax steps we can take before the end of the tax year, and then ensure that we take action in time. Here are some questions to have in mind during the review. It is not a comprehensive list and it is in no priority order.
Income Tax
Income Tax Rate Bands – Can you make use of lower rate tax bands, e.g. by transferring income producing assets to spouse (in these notes, ‘spouse’ also includes a ‘partner’ in a civil partnership) or to a tax efficient investment structure such as an ISA or investment bond (but be aware of any anti-avoidance or settlements provisions)?
Personal Allowances – Will you use them to the maximum extent possible for yourself and/or your spouse, or lose them as they cannot be carried forward?
Married Couples/Civil Partnerships – Is there any scope to utilise each person’s personal reliefs, as well as their Savings Starting Rate (up to £5,000 of interest tax-free) and Basic Rate Tax bands?
Dividend Nil Rate Band – Do you, or could you, receive dividends? The first £2,000 (2022/23) of dividend income received in the tax year is free of income tax.
Personal Savings Allowance/Savings Nil Rate Band – Are you, and/or your spouse, a basic rate taxpayer who can take advantage of this opportunity? The first £1,000 of savings income is taxed at 0%.
Pension Contributions – Are you contributing the appropriate amount in the context of your retirement income targets? Achieving those targets is our first aim, but the contributions will also produce significant tax savings.
Capital Gains Tax
Annual CGT Allowance – Do you and/or your spouse (also children) use your annual CGT exemption? The annual exemption (currently up to £12,300 per person – £6,150 for trusts) cannot be carried forward, and will be lost if not used.
Individual CGT Allowances – Can you consider transferring assets to a lower earning spouse? There may be an opportunity to utilise their basic rate band so that CGT applies at 10% rather than up to 20% (18% and 28% for residential property).
Sale to and Repurchase by Spouse – Is there any opportunity for one spouse to sell an asset and for the other spouse to repurchase it (Bed & Spouse)? This action could also be used to establish a loss that can be set against any gains.
Sale and then Shelter Future Gains – Can you consider selling an investment (caveat – investment considerations should be the driver here and throughout, not tax) to transfer the proceeds to an ISA where future gains will be sheltered from CGT?
Straddling the Year End – If you plan to sell an asset, can you spread the sale across this and the next tax year to benefit from two sets of exemptions and to eliminate or reduce CGT?
Delay CGT – Where you are planning on selling an asset, can you consider delaying the disposal until after the end of this tax year if this improves your cashflow by delaying the payment of the tax?
Inheritance Tax
Annual Exemption – Do you wish to consider gifting up to £3,000 this tax year? Up to that amount will be free from IHT.
Carry Forward of Annual Exemption – Did you fully utilise your Annual Exemption in the last tax year? If not, and only after you have used this year’s allowance, you can bring forward any unused allowance to this year, but only to this year.
Bear in mind throughout any review process that when making decisions regarding your assets, particularly when considering selling or transferring, those decisions are often best driven by investment rather than tax considerations. Also, there may be other considerations to take into account, such as anti-avoidance provisions or the implications of any change of beneficial ownership.
We have set out above what is only a brief summary of some key points that involve quite complex rules. Always take relevant professional advice before taking, or refraining from taking, any action.
We are here now to help so please do not hesitate to contact us regarding your financial planning situation. Reviews and our Lifetime Financial Planning Service are all part of our added-value services for our clients.
Barry Fleming & Partners has grown from a tax advisory background into a broader business that encompasses investment management. Both things matter for wealth management, retention and creation. That expertise makes the company strikingly different from others.
This capability allows Barry Fleming and Partners to use its strength in tax advice to take a 360-degree-view of a financial situation to give much broader, more comprehensive advice.
We bring together up to the minute tax, estate, investment and retirement planning advice to create individual, ‘joined up’ financial strategies. This allows our clients to understand and have confidence in how they can best control, retain, and build their assets and income to achieve their objectives with least risk.
A high level of service is key to our long-term client relationships. We work collaboratively. That means our clients can benefit at all times from having ready access to our team of financial planners.
Barry Fleming & Partners are an independent financial advisor specialising in ISA’s, Pensions, Tax, Trusts, Estate Planning, Inheritance Tax Planning (IHT) and other Financial Planning areas. Please don’t hesitate to call on 01488 608 686 and ask to talk to one of our financial advisors. Alternatively use the contact form on our home page.