With valuable time left before tax year end, now is an excellent opportunity to remind your clients not to leave their financial planning to the last minute. Thinking strategically, there are various tax-efficient allowances to make use of before it’s too late. So, what can be done?

1. Maximising pension contributions

When saving for retirement, the maximum you can tax-efficiently pay into a pension is known as the Annual Allowance. It is the equivalent of your relevant UK earnings in that year, up to a maximum of £40,000. It’s worth noting that dividend income does not count towards relevant earnings, which could restrict the amount business owners and investors can pay into their pensions if their remuneration is mostly dividend based for tax efficiency.

If you were a member of a registered pension in the previous three years but did not make full use of those Annual Allowances available, you are able to carry forward the unused amount. For the previous three years the Annual Allowance remained at £40,000, so if a client had not paid anything into a pension, using Carry Forward their potential Annual Allowance would be £160,000.

Whilst Carry Forward is available for the foreseeable future, pension legislation has been prone to change over time. It would be prudent to make use of the maximum Annual Allowance available at any one time, to tax-efficiently maximise retirement income.

Making pension contributions can also help higher and additional rate taxpayers reduce their taxable income, potentially reinstating some lost Personal Allowance under tapering rules for high earners.

Finally, pension contributions can be a very tax-efficient way of remuneration for business owners. If you or, your client would benefit from a conversation about maximising pension contributions and minimising tax, don’t hesitate to get in touch.

2. Top up ISAs

ISAs (Individual Savings Accounts) provide tax-efficient savings, whether invested in Stocks and Shares or cash. ISA contributions are currently subject to a maximum of £20,000 a year, which is due to remain the same in 2019/20.

Significantly, unlike the pension Annual Allowance, your ISA allowance cannot be carried forward from one tax year to the next. It’s a use it or lose it situation, so any unused ISA allowance should be utilised as a priority before the end of the year.

3. Shareholders and the Dividend Allowance

Since April 2016, the Dividend Allowance lets shareholders, both business owners and investors, receive dividends free of Income Tax. Originally introduced with a tax-free maximum of £5,000 p.a. the allowance was cut to £2,000 in April 2018 where it remains today.

Tax is charged on dividends over £2,000 at a rate of 7.5% for basic rate taxpayers, 32.5% for higher rate and 38.1% for additional rate taxpayers. So, if your client has the opportunity to make use of the relatively modest allowance, especially as an investor, it makes good sense to do so before April.

4. Reduce potential Inheritance Tax

Inheritance Tax (IHT) is payable on estates over a certain value; currently a maximum of £900,000 for a married or civil partnership couple, rising to £950,000 in 2019/20, assuming they qualify for the additional Residential Nil Rate Band and are not subject to tapering. At 40%, it’s a widely unpopular tax on the deceased, but only around 5% of estates ultimately end up liable according to the Office of Tax Simplification (ONS). Whilst an ONS review called for simplification of the entire IHT process, there are several planning opportunities available to minimise or mitigate a liability altogether.

The annual gift exemption allows you to gift up to £3,000, which is then immediately excluded from an estate when considering IHT. The amount can be carried forward, but only for one year. Again, it’s another exemption that’s certainly worth utilising before it’s gone. There are other IHT exemptions and planning opportunities available. If a client has IHT concerns, don’t hesitate to put them in touch with one of our financial planners.

With precious time available before the tax year end, it’s certainly worth promoting the opportunities available before they are gone. If you or any of your clients would like advice and guidance, please phone or email. Our team of expert financial advisers and planners have a wealth of experience to ensure all opportunities are explored and utilised.