With less than a month to go until the 5 April tax year deadline, the firm urged savers to ensure they make the most of the tax allowances and exemptions available, even if these are just held in cash whilst market volatility subsides.
Gareth Parsons, Financial Planning director at Saunderson House, said: “We are living through times of great economic and political uncertainty. In this environment, it is understandable that investors are getting distracted and focusing on short-term performance concerns when considering their financial position.
“But this puts them at risk of overlooking a factor that can have a much bigger impact on their total wealth: the amount of tax they pay on it.
“As the tax year end approaches, it’s important that people review their financial situation and ensure they have made the most of the allowances and exemptions available to them.
“There are likely to be simple steps they can take to reduce their own tax burden, or those of family members.
“We have developed a checklist to make it easier for people to identify the potential opportunities to increase their tax efficiency.
“But the most important thing is that people talk to a qualified professional financial adviser about which options are best for their individual circumstances.”
Saunderson House’s top six tips for tax efficiency:
1. Contribute to your pension: Most people can get tax relief on contributions up to £40,000 gross or 100% of earnings (although the limit is lower for those earning over £150,000). And as long as you fully use this year’s allowance you can carry-forward unused contribution allowances for the past three years up to £120,000 gross.
2. Pay into an ISA: Up to £20,000 a year can be saved into these tax-free accounts, and there are lots of different types available. If you are 18-39 years old, you should consider opening a Lifetime ISA and paying in part of your annual allowance, especially if your pension contributions have been maximised.
3. Consider making pension or ISA contributions for others: If you have already contributed as much as you can to your own pension and ISA, why not support family members with theirs? You can add up to £3,600 gross (£2,880 net) into a pension if the beneficiary is not earning income, or up to 100% of their earnings (to a maximum of £40,000 gross, or more see point 1) if they are. You can also contribute up to £20,000 into an ISA, £4,000 into a Lifetime ISA (though this limit is included in the overall ISA allowance) or £4,260 into a Junior ISA on behalf of others.
4. Take profits from your existing investments: If you have money invested in the stock market or elsewhere, you can crystalise gains of up to £11,700 without paying Capital Gains Tax.
5. Invest in other options: If your pension and ISA contributions are maximised, you could explore the potential of Enterprise Investment Schemes, Venture Capital Trusts and Seed Enterprise Investment Schemes. Of course, these investments should be considered in the overall context of your portfolio, as in isolation they are deemed to be higher risk and more liquid.
6. Consider making gifts to family: Many of us want to use our money to help others, and we can reduce our tax burden by doing so. Everybody has a £3,000 annual tax exemption for gifts (rising to £6,000 if no gifts were made in the last tax year), and you can also give as many gifts of up to £250 as you want as long as the recipient hasn’t received a gift of your whole £3,000 allowance. Larger tax-free gifts are also possible if you have surplus income. You could also consider making larger gifts and starting the seven year clock for Potentially Exempt