Use them or lose them: Tax breaks

Use them or lose them: Tax breaks

The end of the tax year approaches and now is the time to make full use of your tax breaks and allowances. Those not used by 5th April are lost forever. Danny Cox, Head of Advice at Hargreaves Lansdown, offers some pointers.

Maximise ISA allowances

Within an ISA you pay no capital gains tax and no further tax on the income. You can shelter up to £10,680 per tax year of which £5,340 can be in cash and £11,280 from the start of the new tax year (6th April 2012).

Where possible, hold all income bearing funds/ shares in an ISA to save income tax. It is important to note the top rate of CGT is 28 per cent yet the top rate of income tax is 50 per cent. Therefore it makes sense to drive tax-free investment returns toward income not gain.

Make full use of your pension

Making full use of your pension allowance is still one of the most tax-effi cient ways to save. Anyone under 75 can still invest £2,880 in a pension, even if they have no earnings or they don't pay tax, and the taxman will top-up their contribution to £3,600. Higher rate taxpayers can claim up to a further £720 reducing the net cost of each £1,000 contribution to just £600.

Building up income in both names is one of the most tax-efficient ways of generating income in retirement. The amount you can contribute to pensions this tax year depends on your earned income and is normally restricted to an overall annual allowance of £50,000.

Minimise capital gains tax
Capital gains tax (CGT) has risen to 28 per cent for higher rate taxpayers, however only once profits have exceeded the annual allowance of £10,600. Use this allowance each year and you can take profits of £10,600 either to supplement your income or use to reinvest in a more tax efficient way such as ISA. If you cash in an investment and make a loss, the loss can be offset against any gains you have made in the same tax year. Alternatively you can register these on your tax return and carry them forward to offset against future gains.

Consider Venture Capital Trusts

Venture Capital Trusts invest in some of the most dynamic, entrepreneurial companies therefore they are high risk. VCTs are one of the most tax efficient investments available where a £10,000 investment could cost as little as £7,000 after tax relief with the prospect of tax free dividends and tax free growth.

Please note tax rules are subject to change and the value of reliefs will depend upon your circumstances.

How is 2012 shaping up for US property?

The US central bank recently signalled that ultra-low interest rates of 0-0.25% would likely be justified through to at least late 2014. That is 18-months longer than its previous prediction and suggests the Federal Reserve thinks the US economy will take longer to bounce back than previously thought.

Some will still hope the central bank's extraordinary admission will mark a turning point for the country's residential property market. Several indicators have begun to suggest the market has started to stabilise in recent months. Sales of new and existing homes, building permits and housing construction starts all showed improvement in the final quarter of 2011. With house prices having fallen by about a third since their 2006 peak, a 'lower for longer' interest rate outlook could entice new homebuyers and support prices by driving down longer term mortgage rates. Existing homeowners could benefit by refinancing their more expensive debts.

UK investors buying US property will need to bear in mind exchange rate movements. Prices have fallen by less than a quarter from their peak for UK buyers (taking into account the dollar's rise versus sterling over this period). Although the pound recovered slightly versus the dollar after the Federal Reserve's revelation, further gains for sterling are by no means assured. With UK households slow to tackle high personal debt levels and the economy on the brink of a renewed recession, it remains uncertain as to whether the Bank of England will lift interest rates any sooner than its US counterpart.


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