lumin news Issue 10 / Winter 2024

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Page 2 lumin news 10 / winter 2024 Key tips for cutting your tax bill before the end of the tax year Counter the cost of living squeeze by making full use of available annual allowances and exemptions. Substantial savings can be made by optimising pensions and ISAs, and by disciplined use of your capital gains tax exemption. PETER FLOWERS Senior Financial Consultant peter.flowers@luminwealth.co.uk Phone 01727 893 333 With inflation still high and a number of tax thresholds frozen, it’s particularly important to make full use of annual allowances and exemptions that enable you to lower your tax burden and build up wealth. This article highlights some key tips that you could consider applying before the tax year ends. Optimise your pension annual allowance Contributing to a pension plan annually can significantly reduce your taxable income. UK savers can now pay up to £60,000 into their pension annually and benefit from tax relief on these contributions, in light of the 50% increase to the annual allowance as of 6 April 2023. Optimising this allowance can provide a valuable boost to your retirement pot, while lowering your tax liability. Tip: If you have unused annual allowances from the three previous tax years you may be able to contribute a larger sum via the ‘carry forward’ rule. For more on carrying forward see page 3. Investment ISAs offer tax-free gains Like pensions, ISAs are one of the two main pillars of tax-efficient wealth building. Each UK adult benefits from an ISA allowance of £20,000, with any interest or gains shielded from tax. The ISA annual allowance can’t be carried over into a new tax year – can you and/ or family members pay more into ISAs before 6 April? Tip: You should always look to make full use of your annual allowance if you have an investment ISA before paying into a general investment account (GIA). GIAs provide flexible access and there is no limit on contributions, but they don’t benefit from the same tax shelters. Harvesting investment gains The annual capital gains tax (CGT) exemption is £6,000. This will be halved to £3,000 from April 2024, which will place even more emphasis on optimising ISAs and pensions, where any investment gains are exempt from tax. However, a couple can still make substantial savings by ‘harvesting’ investment gains in each tax year and applying their annual CGT exemption, rather than letting gains build up and facing a large tax charge down the line. Tip: A professional investment management team can implement annual capital gains harvesting, to ensure Don’t miss out on optimising these annual allowances before 6 April Tax wrapper/benefit Standard pension allowance 1 Carry forward ISA (stocks and shares) Tax-free capital gains Annual allowance £60,000 (or 100% of earnings if lower) a year for earners (contributions for non-earners are limited to £3,600) Unused annual allowances from 3 previous tax years; carry forward from 2020/21 must be used in the 2023/24 tax year £20,000 per adult; £9,000 for under-16s; allowances operate on a use it or lose it basis £6,000 capital gains tax annual exemption; operates on a use it or lose it basis. £3,000 from 2024/25 tax year 1 Savers are subject to a tapered (reduced) annual allowance if adjusted earnings are above £260,000 GOOD TO KNOW Remember to report losses If you have incurred losses when selling individual shares or funds you can carry those losses forward to offset gains made in the future. For tax-exempt products such as ISAs and pensions this isn’t an issue, but it is for shares or funds held directly and /or in a general investment account (GIA). Your GIA provider will produce a report that will detail all gains and losses made in each tax year. By reporting these to HMRC in your annual tax return, you can potentially reduce your overall tax liability, both in that individual tax year, and then (based on current legislation) in future tax years as well. this ‘use it or lose it’ allowance is being appropriately applied before the end of each tax year. Doing the basics right in each tax year can substantially improve longterm financial outcomes and your overall retirement prospects. Find out more about planning for retirement by calling a Lumin expert on 03300 564 446. FACTSHEET Tips for the end of the tax year Request this free factsheet via enclosed response card, info@luminwealth.co.uk or call 03300 564 446
lumin news 10 / winter 2024 Page 3 Last chance to use any remaining pension allowances from 2020/21 MY TIP Using up unused annual allowances from previous tax years can provide a healthy boost to your pension. But any remaining annual allowance from 2020/21 must be used before 6 April, or it will be permanently lost. SARA MOORE Senior Financial Consultant sara.moore@luminwealth.co.uk Phone 01727 893 333 The standard pension allowance, the maximum amount that can be contributed into a pension and benefit from tax relief each year, increased to £60,000 in April 2023 (some higher earners may face a tapered annual allowance). Certain individuals can make a larger contribution by ‘carrying forward’ unused annual allowances from prior tax years. This may be particularly lucrative for small business owners. How does carry forward work? Carry forward allows eligible pension savers to pay more than the standard annual allowance (£60,000) into their pension in a given tax year. This can be achieved by carrying forward unused annual allowances from the three previous tax years. To be eligible you must first use up your annual allowance in the current tax year, before using carry forward from prior years, starting with the earliest of the three available years. Any carry forward from 2020/21 must be used before the 6 April, or it will be lost. Carry forward is only available if you have been a member of a registered pension scheme in a given tax year. It isn’t available if you’ve started accessing your defined contribution pension benefits. Case study The example table below illustrates how carry forward works in practice. In this scenario, the individual could achieve income tax savings of Make substantial tax savings with carry forward Example: Taxpayer in England; £10,000 annual pension contribution by employer. Earnings Pension contributions made 1 Annual allowance remaining 2020/21 £130,000 £15,000 £25,000 2021/22 £140,000 £40,000 None 2022/23 £150,000 £20,000 £20,000 2023/24 £150,000 £30,000 £30,000 2 1 Employee and employer contributions 2 The pension annual allowance rose from £40,000 to £60,000 as of 6 April 2023 Total: £75,000 Potential income tax saving of up to £35,000 up to £35,000 on a pension contribution of £75,000. Benefits for business owners Carry forward can be particularly helpful for small business owners, who can extract company profits via workplace pension contributions and boost their retirement pot, achieving substantial tax savings in the process. In contrast to personal pension contributions, tax relief-qualifying contributions via a company pension scheme are not limited to relevant UK earnings. Company pension contributions are only limited to your annual allowance, plus any available carry forward. Do you want to know how much you could pay into your pension, and how this fits within your overall financial plan? Call 03300 564 446. Use it in 2023/24 tax year or lose it MARTIN COTTER Managing Director of Lumin VZ Group We’re delighted that the specialist mortgage adviser Davidson Deem has recently joined the Lumin VZ family of businesses. The timing is particularly important given the explosive rise in interest rates seen over the past year, which has placed greater financial emphasis on sourcing a new mortgage deal. Davidson Deem has been providing mortgage services since 1989 and has particular expertise when it comes to advising high-net-worth individuals, including solicitors and accountants. They operate as an independent whole-of-market mortgage adviser and deliver a highly professional service, which has resulted in a loyal client following. Their 300 +, 5-star Google ratings are a testament to the consistent excellence of their services. My tip: If your existing deal is coming to an end it’s advisable to consider your options in advance. New rates can be locked in up to six months early. Sign up to our Lumin Mortgage Renewal Register, and we will be in touch to help you find the best available rate ahead of the expiration of your current mortgage deal.
Page 1: Wealth management I Pensions I Mort
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lumin news Issue 10 / Winter 2024

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