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Tax efficiency ideas for the Easter weekend
The clock is ticking on the current tax year, meaning savvy consumers have only a few days to take advantage of a number of allowances and giveaways. Why not use your Easter break to put the following ideas into action, while you still can?
- Inheritance Tax
When you die, will your personal estate be worth over £325,000? If so, you’ll incur inheritance tax (IHT).
However, you can reduce your eventual IHT bill by giving away some of your money (and/or assets) every year; gifts of up to £3,000 in value can be passed to beneficiaries without being liable to IHT every year, so move quickly to ensure you make use of this allowance this year if you haven’t already.
Even if you miss the deadline, all is not lost. It’s possible to carry an allowance over for a year, meaning in the next tax year you’ll be able to gift £6,000 at a maximum.
However, this can’t be carried over for a further year afterward – so make sure you use the full allowance next time if you fail to do so this time.
Also note that such gifts escaping IHT liability is contingent on you living for seven years after you give them away.
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- Pensions
Up to £40,000 can be placed in a pension annually. If you have a pension, and your employer’s contributions (and your own) haven’t met this total yet, why not top it up to the maximum? Contributions are capped at 100 per cent of your earnings per tax year, but tax relief can further increase your contribution by 20 per cent.
You could also consider putting money in your partner’s pension. While this is limited to a maximum of £2,880, tax relief will top up this sum to £3,600.
- ISAs
While ISA rates may be stagnant, using the £15,000 tax-free ISA allowance is a sensible idea. According to research issued by Halifax last week, up to £153m in tax-free interest has been lost by UK consumers in the past year through failure to transfer funds held in instant access and current accounts to cash ISAs.
The only drawback to this approach is that if you hold money in a high-interest account, the new interest rate may be so low that any tax savings you might make from the tactic are wiped out. As a result, it is vital to calculate accurately and compare the gains and losses you will achieve before adopting the strategy.