Many of you will be aware of the usual and more obvious end of year allowances which, if not used, will be lost, with new allowances made available in the tax year 2011/2012, starting on 06th April 2011. I have listed some of these below:
- ISA allowance, £10,200 in total: This amount can be fully invested in equity type investments (such as stocks/OEICs/Unit Trusts), or, if you prefer, you can put up to £5,100 in deposit/ cash holdings, still leaving a balance of £5,100 available to go into investments. This is usually an annually renewable allowance and you can use your new ISA allowance each year with different providers if you prefer. (ISA rule restriction of one provider of each option per annum).
- Capital gains tax allowance (CGT): This again is an annually renewable allowance and currently stands at £10,100 in this tax year. This can be a highly efficient tax allowance for those able to use it, especially if you are a higher rate tax payer. The current flat rate charge for CGT is 18% and this rises to a flat rate of 28% for higher rate taxpayers.
- Personal income tax allowance: Currently up to £6,475 can be earned in this tax year without paying income tax in most circumstances. In the new tax year (2011/2012) the nil rate income tax band is increasing to £7,475 for the year, which may be advantageous for those on lower incomes.
This is not an exhaustive list and you should seek independent advice (IFA) about your own circumstances.
The new tax year (2011/2012) is likely to see changes that may well affect your financial planning going forward and I have listed some of the less obvious points as they stand at this time below.
- Higher rate income tax threshold: As noted above, the nil rate income tax band is increasing by £1,000 in the new tax year to £7,475. However, the level of income that can be earned before paying higher rate income tax is falling by a slightly higher amount, to a new level of £42,475 (20% tax band will fall from £37,400 to £35,001 / High rate income tax charge rate applied previously at £43,845 in 2010/2011). There has been much press comment noting that this may affect around 750,000 people. An example is here: http://www.ifs.org.uk/publications/5452
- The effects of higher rate income tax can be offset by pension contributions, however, in the new tax year 2011/2012), there are many changes expected for pension legislation. One example is the change in the level of pension contribution that can be made to a new level of £50,000 in the year. There is also a new three year carry forward facility being introduced and this is detailed on the HMRC website here: http://www.hmrc.gov.uk/pensionschemes/annual-allowance/changes.htm#5
- Other examples of proposed pension changes can be seen in my previous blog (Income Drawdown Policy Review and Proposed Rule Changes on Annuitisation) here: http://www.churchouse.com/blog.php
As I hope you can see from the above, there is a lot to consider both in the months of February and March 2011 and the forthcoming tax year (2011/2012). With this in mind, it should be noted that we are all different and your ongoing financial planning strategy will be individual to your needs, such as the use of annual tax allowances. Therefore, this article should not be seen or used as individual advice. This article contains links to websites of which the content has not been approved by Churchouse Financial Planning.
Seek Independent Financial Advice (IFA) for your circumstances. Churchouse Financial Planning Limited can be contacted in Guildford, Surrey on (01483) 578800.
Keith Churchouse
Chartered Financial Planner & ISO22222 Certified Financial Planner
Director of Churchouse Financial Planning Limited
Churchouse Financial Planning Limited is authorised and regulated by the Financial Services Authority
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