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Making sure you get the most of your personal annual tax exemptions

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By Caroline Foulger

Giving thought to how best to use your annual tax exemptions now means that later in the year, you can benefit from all the appropriate exemptions and reliefs that are available to you. You will avoid having to rush things when 5 April looms, or worse, finding then that you are not in a position to make the most of your tax free allowances.

You may have seen reports that the Office of Tax Simplification are recommending a review of the current annual Inheritance tax allowances. This is because the allowances are considered by many to be overly complex, therefore it is important to be aware of what they currently are, how they apply to you and whether you can utilise them.

In terms of Inheritance Tax planning, you can make use of:

  • your annual gift exemption of £3,000 (plus a further £3,000 if you did not use that exemption last year)

  • the small gifts exemption of £250 per individual

  • the marriage exemption: this is £5,000 for a child, £2,500 for a grandchild or greatgrandchild and £1,000 for anyone else

  • charity exemption on gifts to charity and/or

  • normal gifts out of your surplus income.

Looking at Income Tax and Capital Gains Tax, this could be:

  • ensuring you fully utilise the ISA allowance of £20,000, as you will not pay Income Tax on the income or Capital Gains Tax on any gains generated by the assets held within the ISA going forward

  • placing the Junior ISA allowance of £4,368 into a Junior ISA for each of your minor children or grandchildren

  • contributing £3,600 per year to a stakeholder pension for each of your children or grandchildren, irrespective of their earnings and whether they are employed and/or

  • transferring assets to your spouse if they are subject to Income Tax at a lower rate.

Needless to say, tax is not the only thing to consider when you are giving assets to children or grandchildren or transferring assets between you and your spouse. It is a good time to review your income and expenditure needs in later life, and also to consider the impact any gifting or ownership changes will have in relation to your estate on death and the terms of your Will.

We offer free Will review appointments and can discuss with you the basics of any gifting for Inheritance Tax planning purposes at that meeting. Any tailored advice that may also cover Income Tax and Capital Gains Tax would be charged based on providing a report for an agreed fixed charge following an initial information-gathering meeting.

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