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Making a contribution into a pension is still one of the most tax efficient investments you can make. As well as growing in a tax efficient way, pension contributions can be used to reduce your current income tax liability. If you own and run a limited company, then your company could make an employer contribution to reduce its corporation tax bill.
At retirement you will be entitled to up to 25% as a tax free lump sum and the remaining funds are used to generate a taxable income. The rules relating to pensions and retirement planning can be complicated and not suitable for everyone. We recommend you seek advice on this subject.
These are just a few of the financial advice tips for 2016/17. If you want to talk in more depth please contact us.
The rates of Capital Gains Tax – which is a tax on the profits made from the sale of assets – will be reduced for some people from 6th April 2016. The CGT rate will be reduced to 10% for basic rate taxpayers, while the rate for higher rate taxpayers will fall from 28% to 18%.
However, the capital gains tax rates due on disposal of residential property will remain 18% for basic rate taxpayers and 28% for higher rate taxpayers. The Annual CGT tax-free allowance will remain unchanged at £11,100.
Investors with assets subject to CGT, for example large share portfolios it might be worth reviewing these based on the new CGT rates and the impact of the dividend tax changes.
From the 6th April there will be a new £5,000 tax-free dividend allowance for investors. If you hold investments that are not in tax efficient, such as Individual Savings Accounts or pension savings and are subject to the new dividend tax then it is important that you seek financial advice. We would recommend investors should review the impact of the dividend tax changes might have on them.
The Chancellor has introduced a new personal savings allowance from 6th April 2016. The first £1,000 of savings interest will be tax-free if you are a basic rate taxpayer, whilst the first £500 will be tax-free if you are a higher rate taxpayer.
Although the amount you can put into Individual Savings Accounts is not increasing for the new tax year, it is still important to use your allowance if possible. Unfortunately, the interest on cash Isa is at an all-time low. However, for many long term investors a low risk stock and shares Isa might be an alternative option.