With a break in the rain over the weekend (in London at least) and the end of Winter Olympics, I sensed a hint of spring in the air. Spring is, of course, the real time for New Year’s resolutions – at least for tax lawyers, financial advisers and accountants, the most important of which is to ensure that clients have taken advantage of every annual tax allowance they can, before the end of the tax year on 5 April. Think of it as a kind of fiscal spring cleaning.
These allowances can ticked off by reference to the type of tax to which they relate.
Starting with inheritance tax, every man, woman and child has an annual allowance of £3,000 which can be given away to anyone, without it having any impact on their nil rate band allowance and the 7 year ‘gift clock’ which usually starts to tick as soon as a gift is made and runs until the donor has survived the gift by 7 years. And for those who weren’t quite on the ball last year, and failed to use this £3000 allowance, it can be carried forward by one year.
Prompted by Valentine’s Day, one can also make gifts on the occasion of a marriage or civil partnership – up to £3000 from each parent to each of the happy couple; up to £2500 from each grandparent; the betrothed can give each other £2500 (of course gifts between them after the big day are spouse exempt in any event) and any one else can give up to £1000.
It should be noted however, that the gift must take place on or before the ceremony and must be conditional on the ceremony taking place. The exemption is not available if the ceremony does not take place.
Lastly there is a small gift allowance, enabling gifts of up to £250 to made to any person, but this cannot be combined with any other allowance and if a series of gifts takes the total over £250, none of the gifts qualify.
Turning to capital gains tax, everyone can realise up to £11,100 of gains tax free each year although individuals domiciled outside the UK who use the remittance basis of taxation do not have an annual exemption, unless their unremitted foreign income and gains for the tax year are less than £2,000. There are, however, anti-avoidance rules to consider when selling assets just to realise a gain and then re-purchasing them.
On the income tax front, each person has an individual tax free allowance, in addition to which there are specific government introduced products to encourage tax efficient savings, the most well known being the Individual Savings Account, or ISA. In the tax year 2013-14, which ends on 5 April 2014, one can put in up to £11,520 into ISAs.
Now if that doesn’t get the fiscal sap rising, I’m not sure what will.
Sophie Mazzier is Counsel at boutique private wealth law firm Maurice Turnor Gardner LLP. Email Sophie.