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Year-End Tax Guide 2017/18 | 5
PENSION CONTRIBUTIONS
There are limits to how much can be invested in a pension
scheme before a tax charge is payable.
To qualify for personal tax relief, a pension contribution must
be made by – or on behalf of – a relevant UK individual.
Tax relief for pension contributions may be restricted by
reference to net relevant earnings and the annual allowance.
The annual allowance is currently £40,000 for those with
yearly income from all sources plus pension contributions
of less than £150,000 in total.
There is a minimum annual allowance of £10,000,
in most cases, for individuals with annual income of
£210,000 or more.
Complex rules also apply to individuals with ‘threshold
income’ above £110,000. Therefore, seeking pension
advice is important.
Provided you had a pension fund during the previous three
years, it is possible to carry forward any unused allowances.
There is a lifetime allowance, which is currently
£1 million. Funds which are over this value when
beneits are accessed can be liable to a tax charge.
PLANNING
If you are over 55 years old, you may be able to start
taking pension drawdown, even if you are still working, but
there are serious tax implications for doing so.
However, deined beneit schemes are likely to have
restrictions and possibly costs if the pension is taken early.
Other things to think about include:
•
when are you planning to retire and what’s your ideal
retirement income?
•
should you increase your pension contributions?
•
when considering if you have exceeded the annual
allowance, have you reviewed both your employee and
employer pension contributions?
•
have you fully considered the potential IHT beneits of
maximising your pension fund?
INHERITANCE TAX
Generally, IHT is due on death at a rate of 40% if the
inheritance threshold of £325,000 is exceeded.
There is a £100,000 residence nil-rate band which is
available subject to certain conditions.
These include leaving the family home, or share of one, to
direct descendants such as children or grandchildren.
This residence nil-rate band will rise annually until
April 2020 when it reaches £175,000, meaning the
individual available nil-rate band reaches a maximum of
£500,000 or £1 million for married couples or civil partners.
The percentage of any unused nil-rate band from the
irst death may be transferred to the surviving spouse,
allowing up to double the nil-rate band applicable at the
date of the second death.
Gifts or transfers made within seven years of death are also
added back into the estate and are liable to IHT, but may be
subject to some exemptions as well as a tapered reduction
for tax on transfers between years three and seven.
PLANNING
Do you have an up-to-date will that relects your wishes
and are you happy with the choice of executors?
Are you taking advantage of exemptions, such as the
annual £3,000 exemption, gifts out of income, and gifts
on marriage or civil partnership?
Should you consider using a discounted gift trust
which allows the gifting of a lump sum into a trust
while retaining income for life?
Do you have surplus assets you can give away and
reduce the value of your estate that is chargeable to IHT?
Should you consider altering the spread of your
investment portfolio into more IHT-eficient products?