Tax year end planning – Gifting, CGT and other allowances

There are allowances each year that can reduce tax, receive tax relief and/or provide tax free growth. These need to be used up before the tax year end (5th April each year) and if they aren’t, they may be lost. Tax years run from 6th April to 5th April. In a series of blogs, I will look at the various allowances for Pensions, ISAs, Capital Gains Tax, gifting annual exemptions, VCTs and EISs. This blog will cover Capital Gains Tax, gifting annual exemptions, VCTs and EISs.

Gifting Annual Exemptions

Each tax year there is an “annual exemption” that enables you to make a gift that will be outside of your estate immediately and will therefore not incur inheritance tax. Moreover, these gifts do not have the “7 year rule” applied to them. The amount you can gift in cash or assets each tax year is £3,000. Anything over this amount would have the seven year rule applied and therefore may be subject to inheritance tax. If you have not used your previous year’s annual exemption, you can carry this forward to the current tax year and therefore, you could gift £6,000 in one tax year, however, you cannot carry more than one year’s allowance forward.

By gifting £3,000 per year, after 10 years, this would save £12,000 inheritance tax.

There are circumstances where you can gift more such as on the marriage of a child. To read more, click here.

Not everyone will be subject to inheritance tax therefore, seek financial advice.

Capital gains

Each year you have a Capital Gains Tax Allowance. This year 2018/19 the allowance is £11,700. This means that on the sale of assets (e.g. a 2nd home, some investments) you are allowed a gain of £11,300 before any tax is applied. The CGT allowance for 2019/20 is £12,000.

Other allowances

There are other allowances that are linked to each tax year. These are more niche investments which are deemed high risk and are not suitable for everyone.

Venture Capital Trusts (VCTs) provide income tax relief up to 30% with tax free dividends and CGT relief. The maximum subscription this (2018/19) and next tax year is £200,000.

Enterprise Investment Schemes (EIS). Also provide income tax relief at 30% and CGT relief. The maximum subscriptions is £1,000,000 for this and next tax year.

The tax year end is a significant cut off in Financial Planning. These allowances if not used, on the most part will be lost. I work with my clients to ensure utilising these allowance is not left until the very end of the tax year. However, if you haven’t utilised these allowances, you may want to speak to a Financial Adviser pretty sharpish and do something before 6th April.

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