Cornwall LivingIssue #67

Feel the benefit

There are plenty of allowances to consider when it comes to tax benefits. Matt Begley, financial expert, takes a look at a few of the main ones.

Inheritance Tax (IHT) is a fairly emotive tax, as many view it as double taxation. A tax paid by the beneficiaries on money that may have already been taxed throughout the life of the person providing the inheritance. As it stands, the individual threshold is £325,000, and beyond that there’s 40% tax to be paid. Married couples and civil partners can also combine their thresholds meaning the last remaining person’s estate can be worth £650,000 before the 40% tax is applied.

“An Individual Savings Accounts (ISAs) is one of the most obvious and available tax-saving devices.”

Additionally, the new ‘home allowance’ may also be applicable – the Residence Nil Rate Band (RNRB) – which is designed to make it easier to pass on the family home to direct descendants without incurring IHT. This will be phased in gradually from the 2017/18 tax year and (if the value of the estate is less than £2m) it could increase each individual’s threshold to £500,000 by 2020/21.Thereby, raising the threshold for a couple to £1m before the 40% tax is payable.

An Individual Savings Accounts (ISAs) is one of the most obvious and available tax-saving devices. An ISA is basically a ‘wrapper’ into which you can place cash or stocks and shares up to a certain limit each year. For the 2016/17 tax year the total individual limit was £15,240. For 2017/18, it’s even better, as the individual threshold now stands at £20,000, which means that a couple, for example, could invest up to £40,000 in this period! Any interest, income or growth that you receive within an ISA will be free from any personal liability to Income or Capital Gains Tax.

To give you a feel for what this could amount to, consider this. If someone used up all of their individual ISA allowances since its launch in 1999 (including the 2017/18 tax year), this could have added up to over £186,500 of contributions, with any growth on that amount being sheltered from tax!

According to HM Revenue & Customs, 150,000 married ISA savers die each year. Tax benefits can now even be applied to ISAs beyond a person’s death, if it’s passed onto the surviving spouse, or civil partner. In the past, the ISA tax ‘wrapper’ passed away with its owner, and the money that had been sheltered became liable for Income and Capital Gains Tax, but rule changes mean that it can be passed on tax-free at death to the surviving spouse, or civil partner. The surviving partner is then able to invest as much into their own ISA as their spouse/civil partner had at death, on top of their usual allowance.

However, the tax-efficient wrapper of an ISA does not apply if, for example, the surviving partner then dies and the ISA was left to another family member or beneficiary. In this instance, it may be subject to 40% tax, if the IHT threshold for the estate was exceeded, unless you’ve planned accordingly.

"An Individual Savings Accounts (ISAs) is one of the most obvious and available tax-saving devices."