Take a Break

As a new tax year rolls around, you should note that there are quite a few changes to the allowances you can claim to help improve the tax efficiency of your financial affairs.

Of course, to our clients we are on hand to advise about these and ensure that in combination they work to the maximum effect within your own financial plan.

If you’re under 65 your personal allowance, which is the amount you can earn each year before you have to pay tax, rises from £8,105 to £9,440. That means if you’re a basic rate taxpayer, you’ll save £267 in tax or £5 a week.

Note – The personal allowance is eroded if you earn more than £100,000 a year. For every £2 of your ‘adjusted net income’, your personal allowance reduces by £1.

If you’re aged 65-74 your ‘age related’ allowance is frozen at £10,500.

Note – You qualify for this if you’re born after April 6th 1948. If you reach 65 after this date, you won’t get the age related allowance as it has been abolished (this was announced in the 2012 Budget).

If you are aged 75 or over your ‘age related’ allowance is frozen at £10,660.

The Married couple’s allowance only applies to couples aged 75 or over (as it’s been abolished for younger couples). The allowance will rise to £7,915.

Tax Thresholds
The 10% tax threshold will rise to £2,790. This is the rate that you pay if your income above the personal allowance is from interest on savings. If you have earnings as well, you have to pay 20% tax on this income.

The 40% tax threshold falls from £34,370 to £32,010. This means 40% tax payers start paying this rate of tax at £41,450 (£32,010 plus £9,440) instead of £42,475 (£34,370 plus £8,105).

The 45% tax threshold which was formerly the 50% tax rate, remains £150,000.

Tax Free Allowances
This is the amount you can save or invest in an ISA every year, how much you can save in your pension and how much profit you can make from investments without paying tax.

ISAs Allowances
This is the amount you can save or invest in an ISA every year, how much you can save in your pension and how much profit you can make from investments without paying tax.

Cash ISAs – You can save up to £5,760 in a cash ISA this year (up from £5,640).

Stocks and shares ISAs – You can invest up to £11,520 in a stocks and shares ISA this year, minus anything you save in a cash ISA (up from £11,280).

Junior ISA and Child Trust Fund (CTF) – You can save or invest up to £3,720 in a junior ISA or child trust fund (up from £3,600).

The Government says it will consult on the options for transferring savings held in both cash and stocks and shares CTFs into the equivalent Junior ISAs, as it wants to support parents by ensuring that there continues to be a clear and simple way to save for all children.

The 12-week consultation, which begins at Easter, will be welcomed by parents who have long called for the Government to allow the two products to be merged due to concerns that CTF providers have no incentive to offer good deals or a decent fund range.

Pensions
The amount you can pay into your pension each year and get tax relief is £50,000 (unchanged from previous years) although this allowance is due to fall to £40,000 in the 2014 2015 tax year.

Note – If you have no earnings at all, you can still pay up to £2,880 into a pension every year and get tax relief at the basic rate of tax (effectively a government contribution, which takes your contribution up to £3,600). This is also unchanged from previous years. You can also put this amount into a pension for someone else – such as your spouse, civil partner, child or grandchild.

The Lifetime Allowance is the amount you can save into your pension over your lifetime and is £1.5 million. This is unchanged from last year, but the figure is due to fall to £1.25 million for the 2014 2015 tax year.

Other Tax Allowances
The Capital gains tax allowance is the amount of gain you can make from the sale investments and other assets without paying capital gains tax. This allowance rises from £10,600 to £10,900 per individual.

Note – If you have investments in an ISA or registered pension scheme there is no capital gains tax to pay when you surrender them or begin to draw them (pensions).

The Inheritance Tax (IHT) threshold is frozen at £325,000. This is the amount a single person can pass on when they die without triggering an inheritance tax liability. If you’re married or in a civil partnership, you can effectively double the amount you leave.

Note – The chancellor has said this rate will be frozen this year and next, in part to pay for its planned cap on care fees.

For advice on how the above affects your own circumstances please contact us on 01626 833225.

Please note that the above article does not constitute financial advice.