Making the most of your tax

As experienced Independent Financial Advisors at Enable we have long advised that pension contributions provide a useful and efficient  way of reducing income tax liability, with individuals benefiting from income tax relief at their highest marginal rate for pension contributions made.

In this tax year contributions can be made up to 100% of earnings, subject to an annual allowance of £50,000 each tax year (and within lifetime limits) and since April 2011, there has also been a three year carry forward rule that allows individuals to carry forward unused annual allowances from the last three tax years. The initial workings of the Finance Bill 2011 have recently been amended and the revised guidance was published at the end of last year on 25 November 2011, allowing any payments over £50,000 in the last three years to be ignored in the carry forward calculation.

For tax planning for those with earnings over £114,950 currently (£116,210 in 2012/13) a pension contribution in the tax year will allow them to recover some of the personal allowance otherwise lost and provide significant tax relief. Whatever your age or your income in the current economic climate, with increasing income tax bills and with the  state pension age set to increase from 2018, our Independent Financial Advisors at Enable can help you work out your personal pension contributions and help you  build up additional pension funds for retirement.  Pension are offering more value than ever to many individuals who are making the most of their income tax situation.

Inheritance Tax worries?

With our children living longer let alone our grandchildren Enable IFA’s of Bishops Stortford know we want to make the most of what we have to help them. Currently an individual can pass on an estate worth up to £325,000 without any inheritance tax applying. If an estate - including any assets held in trust and gifts made within seven years of death - is more than the threshold, inheritance tax will be due at 40% on the amount over the current £325,000 limit.

Gifts made to a child's pension however have the potential to qualify for a number of inheritance tax exemptions, including:

• Gifts of up to £3,000 each tax year are exempt from inheritance tax - making a gift of £2,880 (the maximum net pension contribution) to a child or grandchild's pension an ideal way of making use of this exemption


• Gifts of up to £250 to an individual in a tax year can qualify as inheritance tax exempt payments


• Regular gifts made from an individual's net income can qualify as inheritance tax exempt payments

If a parent or grandparent gifts any monies that are not covered by these exemptions IHT will only apply if the parent or grandparent dies within seven years of the gift being made.

By setting up a pension for a child, a parent or grandparent can help them on the road to a comfortable retirement and vitally may encourage the saving habit that their children will continue once they become an adult. Looking to the long term is something we as experience Independent Financial Advisors at Enable like to help with.