With the new tax year fast approaching, now is the time for savers to start weighing up the options to make the most of their hard-earned cash.
Beating the credit crunch is no mean feat, but Almary Green director Carl Lamb says it’s all about finding tax-smart solutions. Here he takes a look at the top tips for savers seeking to get plenty of bang for their buck.
- ISAs are undoubtedly a key part of any tax-efficient investment portfolio, with all gains free of both income tax and capital gains tax. Allowing investors to save money, enjoy instant access to cash and remain free of the tax man are what make ISAs a winning investment. With the allowance set to increase to £11,280 in the 2012/13 tax year, savvy savers should ensure they use their full allowance within the year.
- Capital Gains Tax is payable by most UK residents, but most also qualify for a yearly allowance – which is set to stay at £10,600 in 2012/13. If you have assets to sell that will result in a gain, be sure to plan the timing of the sale carefully and make sure that you share the gain between partners for a jointly-held asset. Furthermore, the transfer of assets between married partners is tax-free and could be worth considering if one partner has gains in excess of their allowance while the other is below theirs.
- Personal Tax Allowances should not be forgotten. Make sure you – and your spouse if you have one – have maximised your personal allowance within the tax year. It’s worth considering moving income across to lower band taxpayers where possible – income producing investments could, for example, be transferred between spouses on a no gain/ no loss basis. Personal tax allowance is set to rise to £8,105 for those aged under 65 come April, £10,500 for those aged 65 to 74 and £10,660 for those aged 75 or over.
- Pensions have hardly made it out of the headlines of late but with a yearly contribution allowance of up to £50,000 they’re not to be sniffed at. The main advantage of saving through a pension scheme is that the government will allow tax relief on your contributions and with government cuts running ever deeper, investors are advised to make the most of these opportunities. Pension contributions will reduce your taxable income so consider the possibility of making further contributions as this might move you into a lower tax band or make better use of your Personal Allowance.
- Enterprise Investment Scheme (EIS) isn’t normally top of investors’ lists but it remains a tax-efficient investment scheme that offers 30% income tax relief. An investment of up to £500,000 in 2011/12 can be made in an EIS and this figure would double to £1 million in 2012/13. There is also the potential of an unlimited deferral of capital gains tax on the investment provided it is made within three years of its disposal.
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