So, we are now into another tax year and as always seems to be the case, there is ever-changing legislation which can affect our financial planning.
Two notable changes for this tax year are the introduction of the residence nil rate band and the tapering of the annual allowance for pension purposes.
The residence nil rate band is a piece of legislation which has the effect of increasing the amount that can be left as a legacy before inheritance tax is charged subject to the main residence being left to a specified type of beneficiary. While on the face of it this seems a very simple piece of legislation, it is in fact really quite complicated and it is therefore unwise to assume that everyone will automatically qualify for this uplift. As always, professional advice is crucial considering complex matters such as these.
We also have the introduction of the tapered annual allowance for pensions. Over recent years the amount that can be contributed to a pension and tax relief granted has been gradually reduced and new legislation introduced from this tax year reduces this further for individuals earning above a certain limit. The amount that can be contributed can reduce to as low as £10,000 which, when you consider this was £255,000 as recently as 2010/11, is a significant reduction. As with the residence nil rate band, this is a very complex area where we would recommend taking professional advice.
It is not all bad news, however, as the amount that can be contributed to ISAs has been increased to £20,000 per person and therefore couples could shelter £40,000 in tax privileged environments which can go some way to offsetting the reduced pension annual allowance.
One of my favourite sayings is that the only constant in life is change and I have yet to see evidence that this is not the case!